Part 4/12:
Understanding the distinction between disinflation and deflation is crucial. Disinflation refers to a reduction in the rate at which prices are increasing, whereas deflation signifies a decrease in overall prices. The Federal Reserve is targeting disinflation because they want to bring inflation down from its current heights to around 2%, not to see prices drop outright.
Why Prices Are Not Going Back
This distinction leads to a crucial realization: prices of goods and services are unlikely to fall back to pre-2020 levels, even if there are temporary dips during recessions. The overall trend set by inflationary policies means that, over time, prices will continue to rise, just more slowly.