The Inflation Rate Is Too Damn Low

The Federal Reserve is worried about inflation:

Fifteen years ago, Japan found itself stuck with a problem: sinking inflation, interest rates near zero and a limited ability to generate higher prices. Five years ago, Europe faced the same challenge.

The worry haunting Federal Reserve officials is that they will be caught in a similar trap within the next decade. This concern is animating their yearlong review taking center stage with a two-day research conference beginning Tuesday in Chicago….“We’re trying to think of ways of making that inflation 2% target highly credible, so that inflation averages around 2%, rather than only averaging 2% in good times and then averaging way less than that in bad times,” Fed Chairman Jerome Powell said in February.

The fact that the Fed is “trying to think” of ways to increase inflation confirms what I’ve long thought: they don’t know how to do it. Neither did Japan’s central bank. Or Europe’s.

In theory, central banks are supposed to have absolute control over inflation. And in theory, maybe they do: flood the country with enough money for long enough and eventually inflation will rise. But the amount it takes in the face of a fundamentally deflationary economy is apparently so enormous that in practice it’s not always possible.

Most likely this has something to do with the aging of the population. Japan got there first, Europe got there next, and we’re inching in that direction too. What’s the answer to that?

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Fact:

In-depth journalism that investigates the powerful takes real money and is so damn important right now.But it doesn’t take a Mother Jones investigation to know that billionaires and corporations will never fund the type of reporting (like they do politicians) we do that exists to help bring about change. Instead, our mission-driven journalism is made possible by people power, and has been for 46 years now since our founding as a non-profit.

In “TITLE TK” Monica Bauerlein writes about the perilous moment we’re in, and why it’s so important that we raise $325,000 by the time November’s midterms are decided so we can be ready to throw everything we have at the big issues facing the nation no matter what happens. Please help MoJo’s people-powered journalism with a donation today.

$400,000 to go!

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