How can the Fed solve the interest rate conundrum?

How can the Fed solve the interest rate conundrum?

Peter Elston, chief investment officer at Seneca Investment Managers, takes a closer look at the challenges facing central banks.

It is generally agreed that a little inflation (in the order of 2% per annum) is a good thing. Anything higher than this impedes private sector investment decisions. Anything lower is, according to the Federal Reserve, "associated with an elevated probability of falling into deflation." Therefore, a level of 2% is neither too hot nor too cold, but just right. The problem is that in the past it has been extremely hard to keep inflation at this "Goldilocks-like" level. For only one third of the time since 1774 has 10-year annualised inflation in the US been between 0% and 3%. Furthermor...