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Fed Debated A Target For Inflation

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Nearly three weeks before they announced a $600 billion effort to shore up the economy, Federal Reserve officials debated whether to adopt formal targets for inflation and long-term interest rates, and whether the Fed chairman, Ben S. Bernanke, should “hold occasional press briefings.”

The ideas were not acted upon, but the discussion suggested a desire among Fed officials to at least discuss altering how the central bank approached monetary policy in a sluggish economy, and how it communicated with the public. The ideas are likely to be debated again against the backdrop of a political maelstrom that has followed the Fed’s recent decision to resume large-scale purchases of Treasury securities to jolt the weak recovery.

On Tuesday, the Fed released minutes of the Nov. 2-3 meeting of its Federal Open Market Committee, during which it approved the asset-purchase strategy. The minutes also included a video conference the committee held on Oct. 15, the first such unannounced meeting since May 9, when officials met to discuss the European debt crisis.

Economists widely agree that a low, steady inflation rate is best for economic growth. As an economics professor, Mr. Bernanke called for the Fed to officially announce an inflation target — say, 2 percent or slightly less. Such a target, like those used by the central banks in Britain, Canada, and elsewhere, could enhance transparency and predictability. But opponents say it could restrict the Fed’s flexibility, forcing it to stick with a target even in the face of an external shock to the economy.

After becoming chairman in 2006, Mr. Bernanke largely put the inflation-targeting debate on the back burner, partly out of political considerations. The Fed is required by law to keep prices stable and to maximize employment, and some members of Congress fear that an explicit inflation target would lead to one side of the “dual mandate” having priority over the other.

Moreover, in quarterly projections like one released Tuesday, Fed committee members set out long-run estimates that the markets view as implicit targets. Fed officials now expect inflation to be 1.6 to 2.0 percent, and unemployment to be 5 to 6 percent, over an unspecified long run.

Even low inflation of 1%-2% will ultimately prove bad as you will eventually hit the exponential problem.

The economy has to breathe you should have inflation then followed by a period of deflation.

However in the modern economy deflation is very bad because of over leverage and because govts love spending money they haven't got yet and have projected they will receive in an inflationary environment. Once you have deflation the stupid spending commitments they have made are impossible to meet.

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  • 420 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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