How Central Banks Use Inflation Targeting to Anchor Expectations

Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates · May 23, 2026 · 5m · transcript

Episode 6 of Monetary Policy Explained with Fexingo dives into inflation targeting — the framework adopted by central banks worldwide to anchor expectations and stabilize prices. Lucas and Luna explore how the Reserve Bank of New Zealand pioneered the first inflation target in 1990, setting a 0-2% band that evolved into the modern 2% target used by the Fed, ECB, and others. They discuss why explicit targets matter for credibility, how they guide wage and investment decisions, and what happens when central banks miss their targets — as many did after the COVID-19 pandemic. The episode also…