Who gave them credibility in the first place? The government? The ONLY goal the FED has is to keep creating money. The moment they stop, the house of cards collapses. Period. There is no way to sugar-coat it.
Regarding the last 12 years, yeah Bernanke made a great decision to apply a "made up from thin air" 2% target in 2012 and the only reason he did that is because he was pressured into presenting some form of "target". The two percent inflation goal was a popular trend that began in New Zealand based on literally nothing more than a tongue in cheek comment made 35 years ago.
@nereo would be correct to take the historical viewpoint and go wayyyy the fuck back in history and make a legitimate study based on actual numbers.
The truth of the matter today is that the economy is NOT good, inflation is NOT going to stop anytime soon, and rate cuts are not coming. The FED has one job only and that is to continue creating debt from nothing. They will do whatever they can to keep the market alive and the economy appearing to look manageable but anyone who sees all the data points knows the official narrative regarding the state of the "post-pandemic economy" has been complete bullshit and will continue on that way.
How is the economy "NOT good" exactly? Please provide data to back up this assertion.
My data is: US unemployment at 3.8% (near historical lows). US annualized GDP growth at 3.4%, above average. US corporate earnings at the highest level ever (adjusted for inflation). US non-farm productivity at it's highest level ever. 3rd highest year of US personal income per Capita (inflation adjusted). Highest inflation-adjusted US personal disposable income ever (except for the pandemic money-giveaway year).
This seems like the best the US economy has been doing in a very long time (perhaps ever).
You are only looking at the income statement and not at the balance sheet:
huge Federal budget deficit
huge public trade decifit
record Debt/GDP
If your economy grew $10bn but your debt went up by $20bn did you really grow? hmm..
People become blindsided and say that a country doesn't need to pay back its debt.. welll, they may be able to roll it over easier than a household, but I happen to also subscribe to the idea that no entity, individual, state or country, that has an unlimited line of credit with the rest of the world (sure, I know the US is far from unique in this department, which is what makes it all the more fascinating)
The next level down in the analysis is adding back 2% real depreciation of one's $34 trillion national debt. That's like $680B of real debt relief thanks to inflation.
Sure, there's a lot of variance around the optimal mean, but running at 2% gives you more margin for error if things take a turn for the worse than being either side of it
Does it really though? What I’ve heard and argued convincingly is that inflation at/near 0% is really bad, and much worse than 4-5%, which is annoying but generally much better.
The real danger is with zero or deflationary numbers relative to 4-5%; ergo a target closer to 2.5-3% makes better policy.
That's a fair thought,
@nereo. So maybe 2% was picked over the safer 3% because:
a) economists are overconfident in their fine-tuning ability and don't perceive much added benefit from 3%
b) economists are mostly conservative and for ideology and self-interest want to preserve the purchasing power of capital
c) it's more politically acceptable to say we're targeting very low inflation
d) if there is a credibility shortage during inflationary times, and investors think you'll miss your target by 1%, better to have markets expect you'll miss your target and hit 3% than for them to think you'll miss your target and hit 4%.
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