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 little 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 that allows them latitude in trying to boast the economy.
Another source of the theoretical problem is the definition used for inflation. Inflation, the Consumer Price Index (CPI), does not measure changes in stock prices. It also does not include tax changes on goods, but that’s beside the point here.
The great bulk of inflation since 2009 has been in the stock market—making stock owners wealthier—not in Consumer Price Index.