| Welcome to Bw Daily, the Bloomberg Businessweek newsletter, where we'll bring you interesting voices, great reporting and the magazine's usual charm every weekday. Let us know what you think by emailing our editor here! If this has been forwarded to you, click here to sign up. And here it is … The concept of an "inflation target" probably isn't top of mind when you're ogling the price of eggs. But maybe it should be? The idea that the Federal Reserve and other central banks must anchor inflation at a targeted level has been a central plank of economic policy since the 1990s, when New Zealand pioneered the technique. Central banks around the world adopted the approach, and the concept of inflation targeting moved from policy wonk world to the real world. The Fed, for example, is mandated by Congress to keep price gains limited to 2%. Although the policy is credited with helping to keep inflation under control, some are now arguing that the time has come to move the goal posts. Why not settle for a higher target, say 3% or even 4%? What's so special about 2%? "If people sat down today they would not come up with 2%, they would come up with 3% to 4%," Mohamed El-Erian, the chairman of Gramercy Funds and a Bloomberg Opinion columnist told Bloomberg Television. El-Erian isn't alone. Advocates of a higher target say that would reduce the need to keep jacking up interest rates and would allow households and businesses some breathing room during a period of unprecedented economic shocks. "Back in the day, they should've said 3% instead of 2%," Kenneth Rogoff, a professor at Harvard University and former Fed economist, told Bloomberg Television. Sticking with the status quo means that the Fed and others will need to keep raising borrowing costs to levels that risk driving the economy into recession. While the US continues to defy expectations of a steep downturn, some economists say that by pushing up rates in order to hit its 2% target, the Fed is only storing up trouble. Economists at Deutsche Bank reckon the Fed has to raise rates all the way to 5.6%. Looked at through the prism of the Taylor Rule—a model that sets rates based on unemployment, inflation and an estimate of the neutral rate—the Fed would have to hit 9% for inflation to return to target, according to Apollo Global Management chief economist Torsten Slok. The problem with keeping the goal so low is that, thus far, inflation isn't cooperating with all the rate hikes. US consumer prices rose 0.5% in January, the most in three months, and the annual inflation rate came in at a higher-than-expected 6.4%. Some sectors such as clothing—which had seen prices cool late last year—are seeing upward pressure again. Through 2022, the Fed raised its benchmark interest rate from nearly zero in March to 4.3% by its final meeting in December, marking the highest level since 2007. It followed up in January with another 25 basis point hike. In Europe, even after three months of slowing price gains, President Christine Lagarde warned that the European Central Bank intends to raise borrowing costs by another half-point next month to get inflation back to target. In the UK, while inflation slowed for a third month, at 10.1% it remained five times above the Bank of England's targeted level. For sure, calls for reviews of inflation targets aren't new. For example in 2010 a group of academics that included Olivier Blanchard argued for a 4% target, which was dismissed because of fears about how it would hurt central bank credibility (by letting inflation stay too high).  Olivier Blanchard, who argues for a 4% inflation target. Photographer: Andrew Harrer/Bloomberg Blanchard, a former chief economist of the International Monetary Fund, in November used a column in the Financial Times to argue that the time has come to again review the right level for these targets. Yet even though central banks periodically review their mandate, they retain a laser focus on inflation. In an essay released in January, Federal Reserve Bank of Minneapolis President Neel Kashkari likened inflation to Uber surge pricing and warned it means borrowing costs will have to be pushed higher. Australia's central bank governor, Philip Lowe, went further on Feb. 15 when he told lawmakers: "We want to get inflation down because it's dangerous," Lowe said. "It's corrosive, it hurts people, it damages income inequality, and it if stays high it leads to higher interest rates and more unemployment." Still, if the debate gains momentum, the get-out clause for policymakers to curb prices without choking their economies could simply be: higher for longer. —Enda Curran, Bloomberg News senior economy reporter | 
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