New York Times (10/26/13) Binyamin Appelbaum
Some economists have come to believe that inflation is not rising quickly enough, and that a rise in inflation will help the U.S. economy free itself from slow growth and high unemployment. While the Federal Reserve has worked to stifle inflation for decades, some policymakers argue that inflation can be valuable when the economy is weak, as it helps companies make profits and helps borrowers repay debts. The Federal Reserve has targeted inflation at a 2% rise per year since the financial crisis.
Inflation has historically created higher wages and allowed borrowers to repay fixed debts more easily. Also, the rising profit margins which come with inflation allow companies to hire additional workers. However, inflation also suppresses real wages; while a worker may take home more money due to raises, increased costs mean their money will have less value.
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