The Rise of Inflation Targeting

23 Pages Posted: 12 Jan 2024

See all articles by Carola Binder

Carola Binder

Haverford College - Department of Economics

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Date Written: January 9, 2024


This paper discusses the interactions between politics and economic ideas in the long road to inflation targeting in the United States. In the gold standard era, farmers’ sensitivity to price fluctuations, because of their vulnerability to falling prices, made price stabilization a very salient political and social concern. This was especially apparent in several wartime inflations and postwar deflations. Economists of the progressive era, hopeful that scientific innovations and reforms could alleviate the most pressing social ills, honed in on price stabilization as a key to promoting prosperity and social justice. Irving Fisher, in alliance with farm interests, helped members of Congress introduce various price stabilization bills that, while unsuccessful, went a long way toward convincing the public that a price stabilization mandate might be a viable alternative to a gold standard. By the end of Fisher’s lifetime, the stabilization of purchasing power had become an explicit goal of federal macroeconomic policy, though not of monetary policy specifically. In the postwar years, after the Fed gained independence from the Treasury, the Great Inflation and Volcker disinflation set the stage for the rise of inflation targeting by highlighting the benefits of credibility, transparency, and expectations management. The paper points to the tensions inherent in the implementation of inflation targeting—including its position in the “rules versus discretion” debate—which have become more pronounced since the post-Covid run-up in inflation.

Keywords: inflation targeting, inflation, Federal Reserve, Irving Fisher, rules versus discretion, monetary policy

JEL Classification: B22, B31, E52, E58

Suggested Citation

Binder, Carola, The Rise of Inflation Targeting (January 9, 2024). Available at SSRN: or

Carola Binder (Contact Author)

Haverford College - Department of Economics ( email )

Haverford, PA 19041
United States

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