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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You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

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