According to today’s WSJ, some economists are suggesting the Fed should target an inflation rate higher than 2%, perhaps 4%. The argument is as follows:
“The new argument for inflation goes like this: Low inflation and the low interest rates that accompany it leave central banks little room to maneuver when shocks hit. After Lehman Brothers collapsed in 2008, for example, the U.S. Federal Reserve quickly cut interest rates to near zero, but couldn’t go any lower even though the economy needed a lot more stimulus.”.
This reminds me of a dentist I once went to twenty years ago who put a filling in a lower tooth. The filling was a little high and bumped against the opposing upper tooth when I closed my mouth. He then proceeded to file down the upper tooth to fit the filling.