Why Does the Federal Reserve Take 2%/Year Inflation to Be a Ceiling Rather than a Target?
A Hypothesis: Some (many?) Federal Reserve policymakers seem to believe that if there is a recession, they lose.
And they also believe that if inflation gets above 2%/year they will be unable to reduce it to 2%/year without a recession.
Thus they do not take an “optimal control” view of the situation at all. Instead, they seek above all else to avoid getting into a situation in which they will have to take active steps to reduce the inflation rate, because they do not believe they can do so without generating something that will be called a recession.
This is a dangerous and a bad habit of thought for them to have…