Am I missing something here?
Inflation encourages investment - you need to invest in securities with a rate of return at least as good as inflation in order to not lose money. Incentives are aligned to make you do the thing that keeps the cycle going.
Deflation encourages hoarding - you would do better to keep the money under your mattress and wait for prices to fall before circulating it. Incentives are aligned to make you do the thing that destroys the economy.
Inflation in principle isn't horrible, but inflating prices while wages stagnate leaves everyone objectively worse off than they were before. This is already happening to an extent and causes a baseline level of unhappiness; if it were to get out of control things would be very ugly.
The task of a central bank is to use some very broad levers (interest rates, creating currency, etc) to try to keep the rate of inflation low but positive.
Economists discount deflation as being dangerous with just one sentence (it encourages hoarding). Are there any examples of deflation actually being harmful in an economy? There are plenty of examples of inflation being dangerous [0]. Technology is an example where deflation does not encourage hoarding.
This is even more true for some things than others... few people are going to say "Hey, deflation is on, let me wait until next week to eat" when they're hungry today.
I'm not saying deflation is good or anything, but an awful lot of economic theory is rooted in some pretty shaky foundations.
Basically, it's because people want to see their wages go up, and a central bank loses the power to set short term interest rates when inflation is 0%, as we've witnessed in the US over the past 6 years.
When banks make a bad loan and are forced to write of the loan each dollar of loss results in 11 less dollars of loans that can be made. When this happens to a lot of banks at the same time you get a general decrease in the money supply and general deflation (like the Great Depression).
A positive rate of inflation allows banks to resolve some bad loans simply by holding the loan until inflation increases the asset value above the loan amount rather than a write-off. Positive inflation, in other words, is a lubricant for the banking system to make it easier to resolve bad loans which makes issuing loans simpler.
With zero percent inflation banks would demand higher standards for underwriting such as stronger credit and larger down payments. that would generally mean loans would be directed mostly towards older, larger and more established industries and less to newer and smaller industries. Less loans for young people and more for older people.
As a side note what makes the Federal Reserve special is that it is allowed to make loans with infinite leverage on capital. That means instead of a 1 to 12 ration of a typical bank it could be 1 to 100 or 1 to 1000. To keep this special position any profits are foreited to the U.S. Government and implicitly any losses are also eaten by the U.S. Government as well. Which is why which assets the Feseral Reserve purchases is a sensitive topic.
Very theoretically it sets a "you must be this tall to play" floor on stock financed capital projects. So if inflation is 4% and you think new railroad locomotives will pay off at 5% average, then you do it, or if new locos only pay off at 3% then you don't because you'd get a sub-inflation rate of return on stocks or bonds.
Another argument is its essentially a long term debt jubilee, given the extremely optimistic assumption that wages rise with inflation (LOL, not so much since the 80s or so). So at both personal and corporate level, debts as a problem kind of go away with time. A decade of 70s style wage inflation would certainly help with the student loan crisis and the real estate price crisis.
But the moment inflation dips below zero it really starts discouraging spending.
So I suspect it's about having a margin for error. Target zero and it will spend a lot of time negative, target mildly positive and it will spend most of its time mildly positive.
In fact, balancing the two was thought to be a very hard job in theory, almost impossible. And that's why the EU central bank mission _is_ to only stabilize inflation and let each country focus on employment. (it's less and less true because of pressure from EU countries such as France and Italy).
[1] https://www.chicagofed.org/publications/speeches/our-dual-ma...
The problem with that, and with health care especially, is that the 'native' price increase already far outstrips inflation. With that monetary policy, you've introduced an extra 5% tax on already quickly growing industry. So a family going through a health care crisis or crisis of changing insurance will be affected negatively, whereas a family only buying groceries and liquor will feel no undue changes.
So that's what I'm guessing the article is saying, where can/should/will the Fed attempt to affect American savings and purchases.
As a gross generalization:
Higher Growth -> Higher Employment -> Higher Inflation
High Inflation -> Negative Income Growth (for those on low wages and fixed incomes) -> Risk of Recession and/or Social Disruption
Lower Growth -> High Unemployment -> Risk of Recession and/or Social Disruption
Put those parameters in and the "game" gets interesting. At the moment it's just pointless.