Price stability
Price stability is a goal of
In the United States, the Federal Reserve Act (as amended in 1977) directs the Federal Reserve to pursue policies promoting "maximum employment, stable prices, and moderate long-term interest rates".[2] The Fed long ago determined that the best way to meet those mandates is to target a rate of inflation of around 2%; in 2011 it officially adopted a 2% annual increase in the personal consumption expenditures price index (often called PCE inflation) as the target.[3] Since the mid-trend 1990s, the Federal Reserve's measure of the inflation trend averaged 1.7%, a mere 0.3% shy of the Federal Open Market Committee’s 2% target for overall PCE inflation. Trend inflation as measured by the price index of core personal consumption expenditures (PCE) – that is, excluding food and energy – has fluctuated between 1.2% and 2.3% over the past 20 years.[4]
In managing the rate of inflation or deflation, information and expectations play an important role, as explained by
References
- ^ ""The definition of price stability", European Central Bank, on line (April 5 2017)". Retrieved 5 December 2017.
- ^ Public Law 95-188 (Nov. 16 1977).
- ^ "The Fed's plan to hike interest rates". The Economist. Retrieved 5 December 2017.
- ^ Cecchetti, Stephen; Schoenholtz, Kim (28 March 2017). "The Fed's price stability achievement: A case for Federal Reserve independence". Retrieved 5 December 2017.
- ^ "The Outlook for Inflation and Inflation Expectations - Speech, Jeffrey M. Lacker, March 21, 2016 - Federal Reserve Bank of Richmond". www.richmondfed.org. Retrieved 5 December 2017.