Author Topic: Federal Reserve thinks US inflation rate is too low  (Read 440 times)

Offline Mr. Bill

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Federal Reserve thinks US inflation rate is too low
« on: May 21, 2019, 08:15:39 PM »
Reuters, 5/21/19: Fed officials see past misses as trouble for any new inflation approach

Quote
The Federal Reserve is discussing whether a better way to get the U.S. economy to hit the central bank’s inflation target is to tolerate much higher price increases in some years to counter the weaker ones. ...

“I don’t know if they are really going to believe that we are going to follow through,” Chicago Fed president Charles Evans said at an Atlanta Fed conference. “We have been undershooting 2% for so long... I take it as necessary to go above 2 to be presumed to have credibility,” to deliver under any new approach.

New strategies being debated at the Fed would make up for low inflation with faster inflation in the future, possibly prices increases of as much as 3 or even 4% in some years, Evans said...

Since specifying the [2%] target, inflation measured by the Fed’s preferred index has averaged around 1.6%. ...

Offline Morning Sunshine

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Re: Federal Reserve thinks US inflation rate is too low
« Reply #1 on: May 21, 2019, 09:03:41 PM »
I never understood why low inflation is a bad thing.  I.  just. don't. get.  it.

Offline Mr. Bill

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Re: Federal Reserve thinks US inflation rate is too low
« Reply #2 on: May 21, 2019, 10:04:15 PM »
I never understood why low inflation is a bad thing.  I.  just. don't. get.  it.

People have to be discouraged from accumulating savings.  More of their money needs to go into purchases and higher-risk investments, because companies would not be sufficiently profitable if we left these decisions to people's free-market choices.

Also, if there were no inflation you could just store your money as cash and there would be no taxable earnings.  But with inflation, if you earn enough to barely keep pace with the dropping value of the currency, the government can tax you for it.

Also, favored people/companies can be selected to receive the new dollars that are flowing into the economy before they've had a chance to lose their value.

So, all in all, inflation is a great thing, unless you're in the 95% of the population who don't matter.

Offline Morning Sunshine

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Re: Federal Reserve thinks US inflation rate is too low
« Reply #3 on: May 22, 2019, 05:54:58 AM »
thanks.  that explains why.  ::)