alt Hacker NewsWhy is that not good? When inflation is close to 0 real interest rates increase which causes the economy to slow down. It seems clear to me that the optimal rate of inflation is always above 0.
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The Fed did a study some time back estimating CPI levels since 1800. [1] They found that from 1800 to 1950 the CPI never shifted more than 25 points from the starting base of 51, so it always stayed within +/- ~50% of that baseline. That's through the Civil War, both World Wars, Spanish Flu, and much more. And obviously the US economy increased in sized quite exponentially from 1800 to 1950, with no persistent inflation whatsoever.
It's even more interesting to contrast this from 1971 onward. 1971 is when Bretton Woods ended and the government was given a free hand to start 'printing money' so to speak, and inflation became the new policy. Since then the CPI has increased by more than 800 points, 1600% more than our baseline. And it's only increasing faster now - to the point that these numbers I'm giving are already rather outdated.
[1] - https://www.minneapolisfed.org/about-us/monetary-policy/infl...
The real problem imo is that below 0% is really bad, and has the potential to spiral. So the fed does not target anything close to 0%, but instead targets some buffer above it.
So it's not that "2% is good", but more that "2% is the best buffer we've decided above the <0% super scary threshold"