A little food for thought.
The Fed’s call for 2% inflation is an indication that economists don’t have a complete economic theory that explains both production and price changes. If they did, they would advocate 0% inflation.
2% is pulled out of the air, with no economic grounding.
- Inflation is defined as stable prices. Many times you will hear the argument that businesses hate change, yet for inflation we are to believe they welcome it.
- The true reason the Fed proposes 2% inflation rate is to have a tool against future business downturns.
Another source of the theoretical problem is the definition used for inflation. Inflation, the Consumer Price Index (CPI), does not include consumer purchases of stock and the effect of changing taxes on goods.
The great bulk of real inflation since 2009 has been in the stock market, making people who already own stock wealthier.