Comment by snowwrestler
6 months ago
It’s impossible to keep prices perfectly steady, the Fed could not possibly be that precise. If they tried, we would bounce back and forth between inflation and deflation, which would be incredibly destabilizing to long-term investment… and therefore destabilizing to job growth and capital improvement, innovation, etc.
So instead the Fed aims for a small amount of inflation. That way when they miss a bit, we still stay out of deflation. It is much better to bounce between 2% and 3% than between -1% and 1%.
If the goal was actually to inflate the debt away, they would be aiming higher. Proof: the debt has been growing in real terms, not shrinking.
The Fed has stated that one benefit of a small amount of inflation is that it provides employers with a mechanism to effectively revise wages downward without employees quitting (by denying them an annual raise), but yes - they have never stated that they are trying to inflate the debt away.