Fed Should Target Spending, Not Inflation

Fed Should Target Spending, Not Inflation

The idea that what this economy needs is more inflation will sound odd to most ears, but a lot of smart people are voicing it. They’re right that we need looser money, but wrong about why.

The Federal Reserve has interpreted its mandate to promote “stable prices” to mean that it should shoot for an inflation rate of roughly 2 percent per year. The latest “core inflation” number -- which excludes energy and food prices because they’re more volatile -- was 1.68 percent. The Cleveland Fed estimates that the market expects inflation to average 1.55 percent over the next decade.

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