The Federal Reserve aims for 2% inflation of personal consumption expenditures over the long term. Why 2%? The Fed argues ‘when households and business can reasonably expect inflation to remain low and stable, they are able to make sound decisions regarding saving, borrowing, and investment, which contribute to a well-functioning economy.’ In reality, major central banks latched onto 2%, but that figure is hardly scientific. A stable rate of inflation at 3% would still be low and economic agents would be able to make sound decisions. As many analysts note, a 3% target could provide more room above the zero low bound, ... (full story)