by James Rickards
The Fed says that “price stability” is part of their dual mandate and they are committed to maintaining the purchasing power of the dollar. But the Fed has a funny definition of price stability.
Common sense says price stability should be zero inflation and zero deflation.
A dollar five years from now should have the same purchasing power as a dollar today. Of course, this purchasing power would be “on average,” since some items are always going up or down in price for reasons that have nothing to do with the Fed.
And how you construct the price index matters also. It’s an inexact science, but zero inflation seems like the right target.
But the Fed target is 2%, not zero. If that sounds low, it’s not.