The Economy & the Fed

Inflation

A general, ongoing rise in prices, so the same dollar buys less than it used to. If inflation is 3%, something that cost $100 a year ago costs about $103 now. A little inflation is normal in a growing economy, and the Federal Reserve aims for about 2% a year. Too much hurts savers and anyone on a fixed income, and pushes interest rates up; too little can signal a weak economy. Economists split its causes into two kinds: demand-pull, when people and businesses want to buy more than the economy can make, and cost-push, when the cost of making things, such as wages or energy, rises and companies pass it on.

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