Higher inflation could disrupt economic activity, but it also would enhance the Fed’s power to stimulate the economy during recessions. And some experts say the struggles of the Fed and other central banks to provide enough stimulus since the Great Recession suggest they could use more room for maneuvering.
.. There is also considerable political opposition to higher inflation. Some conservative economists and politicians argue that central banks should aim to keep inflation well below 2 percent.
.. The case for raising the 2 percent target rests on the counterintuitive idea that moderate inflation is a good thing, helping to grease the wheels of commerce and prevent an outright fall in prices. This is widely accepted by economists. It is the reason that central banks aim for a modest inflation rate, rather than keeping prices at the same level from year to year.
.. “If you really thought that’s the world we’re in because of the demographics or productivity growth — if that’s really what our future holds — I think that’s just a reality that you need to think about monetary policy and its ability to achieve goals,” Mr. Williams said.
.. Ben S. Bernanke, the former Fed chairman, has argued in response to Mr. Summers that rates are being suppressed by a “savings glut” in some countries, notably Germany, that is likely to dissipate as growth improves.
.. Stanley Fischer, the Fed’s vice chairman, said at a separate I.M.F. event this month that it was important to keep inflation low enough so that people did not need to pay it any attention. At 2 percent annual inflation, it takes about 36 years for a dollar to lose half of its value
.. “When you start getting up to 4 percent inflation you begin to see signs of indexation coming back and a whole host of the inefficiencies and distortions,”