Trade is only about a quarter of the U.S. GDP. It would be kind of silly to manage domestic inflation solely to create financial international advantage. The U.

Trade is only about a quarter of the U.S. GDP. It would be kind of silly to manage domestic inflation solely to create financial international advantage. The U.S.’s strongest international advantage is our strong domestic economy (the business that Americans do with each other). Inflation is managed to support that. Specifically, the goal of the Fed is to create stability, which major businesses need to do long term planning. It is more stable to “err” consistently on one side of the origin or the other; the Fed errs slightly on the side of inflation because it creates an incentive to invest. You can look back at historical inflation rates and see the crazy volatility that existed before the Fed: swings of as much as 10% from inflation to deflation and back again. This made it very hard for people and businesses to make long-term financial decisions.