How Far Down Should Fed Try to Push Inflation
JACKSON HOLE, Wyo.ÛÓOver the past 15 years, the Federal Reserve has driven U.S. inflation down from double-digit territory to under</br></br>But few Americans seem troubled by the continuing modest rise in prices, except occasionally when the price of something jumps dramatically, as gasoline did earlier this year. So the natural question is, should the Fed try to squeeze the economy harder to achieve its goal? countries and a few developing ones as well, the question is being asked in a variety of ways around the world. At a conference sponsored by the Kansas City Federal Reserve Bank here last week, dozens of central bankers, economists and financial market analysts almost all said the answer is yes.</br></br>ÛÏThe fundamental reason to pursue long-run price stability is thatÛÓ as has long been argued by central bankers and is increasingly accepted by academic economistsÛÓinflation is economically and socially costly,Û said Stanley Fischer, first deputy managing director of the International Monetary Fund.</br></br>means "reasonably low inflation, typically 1 percent to 3 percent per year,Û not zero inflation, he added.</br></br>Having some inflation can make it easier to achieve needed adjustments in the economy, such as allowing inflation-adjusted wages to decline without cutting actual pay-checks and giving central banks room to push inflation-adjusted interest rates below zero to stimulate an economy.