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The value of a dollar is arbitrary so having it slightly change over time works just fine, I don't really understand what you think would be the issue there. A
by tdb7893 3y ago
The value of a dollar is arbitrary so having it slightly change over time works just fine, I don't really understand what you think would be the issue there.
Also, to be clear, the inflation target is not 2% because the Fed just like prices going up, I've always been told they target 2% because it gives them a bit more wiggle room with interest rates (higher inflation means higher interest rates) in case of a recession.
- dragonwriter 3y ago> I've always been told they target 2% because it gives them a bit more wiggle room with interest rates (higher inflation means higher interest rates) in case of a recession. There are a number of reasons usually cited for preferring small positive inflation, but that's not one of the ones I’ve usually seen. Deflation being seen as more harmful than i inflation leading to a bias away from it, and noninal wages being sticky so small positi5 inflation making it easier for their to be gradual decline in real wages in low-demand industries, and thus better demand-based pricing signalling for labor (the alternative being wages that don't adhust as smoothly but more rapid job losses when demand falls.)
- tdb7893 3y agoI've heard different things but for context this is what the Fed's FAQ says https://www.federalreserve.gov/faqs/economy_14400.htm https://www.federalreserve.gov/faqs/economy_14400.htm