| ▲ | kachnuv_ocasek 3 days ago | |
Why those arbitrary thresholds? | ||
| ▲ | JumpCrisscross 3 days ago | parent | next [-] | |
> Why those arbitrary thresholds? The broad idea is you want a number low enough that people don't price inflation expectations into day-to-day pricing but not so low that a hiccup causes deflation. The empirical evidence around inflation persistence is a bit all over the place, but broadly suggests people start daily indexing between 2 and 5%. When that starts to happen, restraining inflation without causing a depression becomes incredibly hard, because people will actively countermand policy moves. | ||
| ▲ | hadlock 3 days ago | parent | prev | next [-] | |
The fed has a dual mandate to maintain full employment and keep inflation at 2%. Others have already explained why 2% and not 0%. Up to 3% is expected, 4% means significant price shocks and they should consider acting quickly. 5% means they are at risk of losing control of inflation as it's more than doubled from their mandate and the fed risks losing credibility with markets | ||
| ▲ | horsawlarway 3 days ago | parent | prev [-] | |
In complete seriousness: An offhand remark made by New Zealand's Finance Minister, Roger Douglas, during a 1988 television interview. | ||