No. of Recommendations: 17
I certainly don't argue with the notion that historically average US inflation rate has been somewhat above the Fed's 2% target.
Since 1925, the start of my usual data set, the median rolling year has been 2.65%, and the average rolling year has been 3.03%, and the compound rate has been 2.95%.
But: so?
There is this yawning chasm of logic whereby the writer suggests that the central bank's target should equal the historical average. Why? The 2% target taken by the Fed (and a number of other central banks) is chosen because they think it best serves the long run stability and prosperity of an economy. It's arrived at by starting with price stability, but then adding just enough slippage to help with the real problems caused by nominal price stickiness. Neither the target number, nor the logic behind its selection, has anything at all to do with what has been typical in the past. The economy was manifestly broken in the past during (and due to) some times of very high (and occasionally very low) inflation, so those are not good samples to include in what you want to aim for.
My historical average weight is not the same as my target weight, for much the same reason : )
Jim
