by William Dunkelberg
Forbes
There’s nothing magic about the Federal Reserve’s 2% inflation goal. It was concocted by a bunch of regulators and economists as a method to keep the economy away from destructive deflation (we could use a little to reduce the 20% price increases over the past three years!), while not causing too much damage to finances. So, the Fed is committed to devaluing the dollar by two cents every year and keeping interest rates 2 percentage points higher; And that’s good? Over 10 years, you have lost 20% of the value of the savings you started with.
Inflation was under 3% during the Trump administration. It reached 9% under Biden and, over the past three-plus years, the price level (CPI) has increased 20% (cumulative). Compensation rose by less, so real wages fell over that period. To help get the inflation rate back down from its 9% peak, the Fed raised its policy rate to over 5%. With inflation falling to 3%, the Fed is now considering lowering its policy rate. Market rates will follow (including mortgage rates and the 10-year Treasury yield), hopefully settling in to a “soft landing” (a slowdown in the economy short of a recession).