0% inflation is a bad thing because it encourages people to put off purchasing things. That means that people who make things lose work. Fewer people are employed; less stuff is made; the economy as a whole doesn't advance.
Low inflation is good for savers, but they'd rather have people invest money than sit on it. Inflation is a punishment for people who take their money out of the system.
The Fed aims for a gentle inflation to nudge people into buying stuff now rather than putting it off until tomorrow. The 2% figure is, very roughly, the amount of inflation that matches the expected systemic unemployment under Okun's Law. ("Laws" in economics are, of course, much less solid than they are in physics, but it does mean there's a model behind it and not just a guess.)
Quite possibly. The theory I was describing assumes indefinite economic growth. There are good reasons to think that there are limits, and we're coming up on them.
We've managed to subvert those limits in the past. Technologically, we could do that with climate change as well, though socially and politically that's much less feasible. That could well mean that we reach the limits of exponential growth sooner rather than later.
That raises an awful lot of questions that traditional economics is not prepared to answer. And a lot of people aren't going to like the answers.
IMO, the Fed should have an unemployment target, not an inflation target. They should lower rates when unemployment is high, and only be allowed to raise them when unemployment is low AND inflation is high.
Now would be a fabulous time to make that switch, since now is one of the few times where this shift in policy wouldn't result in a switch in practice.
Inflation only serves to create profit for industry. The only inflation target I propose is 0%.
Just think about it, why don’t they consider a 0% inflation a stable economy? And why is 0% inflation a bad thing?