Question

Select all that apply

Which of the following are reasons the Fed sets its target inflation rate at the current level?
Multiple select question.

To protect savers

To reward high earners

To assist downward wage flexibility

To reduce tariffs

To compensate for upward measurement bias

Answer 1

The Federal Reserve (the Fed) sets its target inflation rate primarily to promote economic stability and growth, and the following reasons are relevant:

- **To protect savers**: This is generally a consideration, as moderate inflation can help protect the value of savings and encourage spending and investment.

- **To assist downward wage flexibility**: This is somewhat related, as moderate inflation can help employers adjust wages downward in real terms without actual nominal wage reductions.

- **To compensate for upward measurement bias**: The Fed sets its inflation target partly to account for biases in measuring inflation, ensuring that its goals reflect the true economic environment.

The other options, "to reward high earners" and "to reduce tariffs," are not typically reasons associated with the Fed's inflation target.

Thus, the selected reasons are:
- To protect savers
- To assist downward wage flexibility
- To compensate for upward measurement bias