Revising the U.S. Inflation Target — An Idea for 2026

[Ben Graham]

While the dollar is rapidly recouping everything it lost at the end of last year against a number of risk assets, the idea of revising the U.S. inflation target has once again appeared on the horizon.

At the end of last year, Treasury Secretary Scott Bessent supported the idea of revising the Federal Reserve's 2% inflation target, but only once the United States manages to sustainably bring inflation down to that level. "Once we get back to 2%, which I think is not far off, then we can discuss it," Bessent said in an interview.

Bessent also suggested that the discussion could potentially focus on shifting to a target range of 1.5% to 2.5% or from 1% to 3%. "There is a very serious discussion ahead," he said.

Such rhetoric clearly points to a degree of concern within the U.S. government about the current macroeconomic situation. On the one hand, reducing inflation to the 2% target remains a top priority; on the other, there is an understanding that overly aggressive measures to combat inflation could lead to undesirable consequences for the economy as a whole.

Revising the inflation target is a complex and delicate issue that requires careful analysis of potential benefits and risks. On the one hand, raising the inflation target could give the Federal Reserve more flexibility in conducting monetary policy, allowing it to respond more adaptively to economic challenges. On the other hand, it could undermine confidence in the central bank and trigger higher inflation expectations, ultimately making inflation harder to control over the long term.

In addition, it should be taken into account that revising the inflation target could have significant implications for the global economy. A stronger dollar, driven by expectations of tighter U.S. monetary policy, could put pressure on emerging-market currencies and lead to capital outflows from those countries.

Let me remind you that in 2012, Federal Reserve officials officially and publicly approved the current 2% inflation target, which is shared by many central banks around the world. Bessent stated that the idea of such precision—down to tenths of a percent—is simply absurd. However, he also noted that changing the target during a period of rising inflation could create the impression that it is being done solely to smooth over negative data.

Recall that in December 2025, the Consumer Price Index rose by 2.7% year over year. The Federal Reserve uses a separate measure, the Personal Consumption Expenditures (PCE) price index. According to the latest data, over the 12 months through September 2025, the PCE index increased by 2.8%.

As for the current technical outlook for EUR/USD, buyers now need to focus on breaking through the 1.1700 level. Only this would open the way toward a test of 1.1725. From there, a move up to 1.1755 is possible, although achieving this without support from large market players would be quite difficult. The furthest upward target would be the 1.1780 high. In the event of a decline, I expect to see serious action from large buyers only around the 1.1670 level. If no such interest appears there, it would be preferable to wait for a retest of the 1.1650 low or to open long positions from 1.1620.

Regarding the current technical picture for GBP/USD, pound buyers need to overcome the nearest resistance at 1.3445. Only this would allow a move toward 1.3475, above which a breakout would be rather difficult. The furthest target would be the 1.3500 level. In the event of a decline, bears will attempt to take control of the 1.3411 level. If successful, a break of this range would deal a serious blow to bullish positions and push GBP/USD down toward the 1.3375 low, with the prospect of a move to 1.3345.

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