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Our most academic publication offers research and surveys on monetary policy, national and international developments, banking, and more. The content is written for an economically informed readership—from the undergraduate student to the PhD.


Vol. 94, No. 1 (Posted 2012-01-01)

How Did We Get to Inflation Targeting and Where Do We Need to Go to Now? A Perspective from the U.S. Experience

by Daniel L. Thornton

The Federal Reserve is not formally inflation targeting. Nevertheless, it is commonly believed to be an implicit inflation targeter. The evolution to inflation targeting occurred because central banks, most importantly the Federal Reserve, demonstrated that monetary policy could control inflation. As central banks’ credibility for keeping inflation low increased, policy actions became increasingly focused on affecting the growth rate of employment or the unemployment rate. The author argues that this change in emphasis is unlikely to generate positive benefits; more importantly, it endangers the continued effectiveness, and perhaps even the viability, of inflation targeting.

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