What is the current US Federal Reserve target for inflation?

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The Federal Reserve's Inflation Target is 2 Percent

The US Federal Reserve monitors the personal consumption expenditures (PCE) price indexes to gauge progress toward its inflation target of 2 percent. This target is a cornerstone of the central bank's monetary policy framework, aiming to foster price stability and sustainable economic growth.
Rationale for the 2 Percent Target

The Federal Reserve, like many central banks globally, has adopted a 2 percent inflation target. This specific level is generally considered a balance between avoiding the risks of deflation, which can stifle economic activity, and preventing inflation from becoming too high, which erodes purchasing power. Historically, central banks have found that a low and stable rate of inflation, such as 2 percent, provides a buffer against deflationary pressures while signalling a commitment to price stability.
Measurement of Inflation for Target Assessment

To assess progress towards its inflation objective, the Federal Reserve closely watches the Personal Consumption Expenditures (PCE) price indexes. This measure is preferred over other inflation gauges, such as the Consumer Price Index (CPI), because it reflects a broader range of consumer spending and allows for substitutions in consumption patterns. For instance, in June, the overall PCE price index saw a 0.2 percent increase, bringing the annual inflation rate to 3.0 percent. The core PCE price index, which excludes volatile food and energy prices, also increased by 0.2 percent in June, with the annual rate slowing to 4.1 percent.
Implications for Monetary Policy

The adherence to a 2 percent inflation target significantly influences the Federal Reserve's decisions on interest rates. When inflation trends above the target, the Fed may consider raising interest rates to cool down the economy and curb price increases. Conversely, if inflation is persistently below the target or if there are risks of deflation, the Fed might lower interest rates to stimulate economic activity. The recent slowing of inflation, as indicated by the PCE data, plays a crucial role in the Fed's deliberations regarding the future path of its policy rate.

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What is the current US Federal Reserve target for inflation?

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