Inflation has significantly decreased and, as a recent report from the White House indicates, grocery prices that soared last year are currently falling and might continue to do so in the coming months. However, nobody knows precisely how far inflation will drop or if it will reach the Federal Reserve’s target of 2% inflation. One might wonder why 2% is the target to begin with. Inflation targets are a relatively new concept and the Reserve Bank of New Zealand was the first to introduce a target of 1-3%. By the late 1990s, a 2% inflation target seemed to satisfy both sides, as economists who were rooted on stable prices deemed that official price statistics overstated inflation and did not account for new product benefits. Meanwhile, economists who worried about recession-fighting believed that a 2% inflation target would be high enough to eliminate the zero lower bound issue. However, we have spent a considerable time at the zero lower bound despite averaging around 2% inflation. A decade ago, some economists suggested raising the target to 4%, but central bankers disapprove of the idea, fearing that the bankers would lose credibility. Nonetheless, is losing credibility good enough reason to impose high unemployment to get inflation back to 2%? While inflation has been beneficial as it has not gone out of control, resulting in the public not needing to pay attention to it, it may be time to consider another inflation target, such as 3%, for people to stop thinking about inflation so much. Policymakers may face the question of whether to put the economy through the wringer to achieve an inflation target that has turned out to be based on old simulations that were incorrect.
:max_bytes(150000):strip_icc()/GettyImages-1926668948-0a7936b2874a494c96ecc717a8b03650.jpg "S&P 500 Positive factors and Losses As of late: Index Rebounds After Encouraging Inflation Knowledge")
