ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The 2% inflation target is key to the Federal Reserve’s vision for stable prices in the U.S. economy, according to the Federal Reserve Bank of St. Louis. Canada, Australia, Japan and Israel are among the many economies that include 2% in their inflation rate targets, according to the International Monetary Fund.

Detailed explanation-2: -described 2 percent target inflation as “not realistic.” “It’s likely to be much higher, ” he said Thursday. Wall Street bigwigs are making similar statements, arguing that 2 percent inflation is not worth the pain of the recession that it would take to get there.

Detailed explanation-3: -Erodes Purchasing Power An overall rise in prices over time reduces the purchasing power of consumers, since a fixed amount of money will afford progressively less consumption. Consumers lose purchasing power whether inflation is running at 2% or at 4%; they just lose it twice as fast at the higher rate.

Detailed explanation-4: -Since 2012, the U.S. Federal Reserve has targeted an inflation rate of 2% as measured by the Personal Consumption Expenditures (PCE) Price Index. Keeping inflation low is one of the Fed’s dual mandate objectives, along with stable and low unemployment levels.