Welcome to economics 101, I guess. This was a question that I had this morning after hearing the ‘good news’ about the economy. The US economy is beating expectations and it’s all very exciting! Honestly, it’s a good thing. I’m not complaining. But if the US economy is doing so great, why are prices still going up? And will they ever come down?
So, why are prices still going up? That seems like a reasonable question. And I’ll be honest. I didn’t like the answer: The Federal Reserve. Evidently, they want inflation at 2%…. That’s the dream number for them…
TheĀ Federal Reserve‘s inflation target is 2% becauseĀ it’s considered a healthy level that balances the need for price stability with the desire to avoid deflation and provides the Fed with room to stimulate the economy when needed.Ā A 2% target is seen as low enough to preserve purchasing power but high enough to avoid the negative consequences of deflation, such as discouraging spending and investment.Ā It also allows the Fed to lower interest rates to boost the economy without hitting theĀ zero lower bound,Ā which is when interest rates are already at or near zero
Now just a reminder that I’m just a dope trying to figure this all out. The Fed keeps inflation at 2% so they have wiggle room in case of a disaster… And if the economy is booming, prices won’t come down, because of inflation. Huh.
I guess our only hope is for wages to skyrocket. If we all make more money, then we won’t mind paying 20 dollars for a candy bar in the future? Do I have that right? The whole thing seems insane to me just saying. California raised the minimum wage, and everyone knew it would kill jobs. It did.
Uh oh… I’m becoming one of those “End the Fed” people! Yikes!
