Why Does the Fed Care about Inflation? An Inflation Explained Video

Video summary

This video explains how and why the Federal Reserve uses controls to raise or lower the rate of inflation.

Full transcript

We now know what inflation is and how that impacts you. But if it means prices will go up, why do we want it at all? Well, a little bit of inflation is actually a good thing. It means the economy is firing on all cylinders. There are plenty of jobs, and people aren’t hesitating to spend their money on goods and services. Inflation can’t be left unchecked, though. Without someone watching over it, prices could rise dramatically, possibly leading to rapid and out of control price increases called hyperinflation. When this happens, the economy could suffer because people wouldn’t be able to keep up with skyrocketing prices. So, who keeps an eye on inflation to make sure this doesn’t occur? Enter the Federal Reserve and their Center for Inflation Research in Cleveland. The Fed’s expert policymakers and economists make sure inflation isn’t too high or too low, usually about 2%. They use controls such as setting interest rates that help to slow down or speed up the rate of inflation. With the help of the Federal Reserve, there’s just the right amount of inflation. The economy stays on track, and that orange is a little easier to buy. Want to learn more about inflation?