But the neutral rate has been creeping lower for decades, dragged down by powerful and slow-moving forces like population aging. Should it continue to fall, the tricks Mr. Bernanke and his Fed used to coax the economy back from the brink in the 2007 to 2009 recession might prove insufficient. In that case, “a moderate increase in the inflation target or significantly greater reliance on active fiscal policy for economic stabilization, might become necessary,” Mr. Bernanke said in a speech delivered in San Diego at the economics profession’s biggest annual meeting. The Fed currently targets 2 percent annual inflation, a level it believes is low enough to allow for comfort and confidence on Main Street while leaving the central bank enough room to cut rates, which incorporate price changes, in a downturn. That target is meant to be symmetric, meaning that the Fed is equally unhappy if prices run below or above 2 percent.

Source: New York Times January 05, 2020 02:01 UTC