The economy is overheating, and we need to slow it down a little bit. That's one way to do that would be to raise the federal funds rate. In the seventies, wele we had inflation kept higher and higher, and eventually the fed sad enough and they did it,. The concern is that will happen this time?
What's so bad about rising inflation? Why should we aim for a rate of 2 percent? Why is it a problem if interest rates are too low--and what do we mean by inflation, anyway? Stanford University's John Taylor talks with EconTalk host Russ Roberts about these questions, the Taylor Rule, why inflation is rising, and what the Fed should do about it. At the end of the conversation, Taylor discusses whether stimulus stimulates and the dangers of the national debt.