"Bernanke and company are trying to reflate the economy with almost stated objective of inflation at 2 percent and higher in order to provide some type of safety margin for a future recession. That's where they want to go"

The statement from Bill Gross highlights the Federal Reserve’s approach under Ben Bernanke’s leadership to spur economic growth by deliberately aiming for higher inflation, specifically, at least a 2 percent target. This policy direction reflects a significant shift in central banking strategy. Rather than solely focusing on suppressing inflation, the Fed set an explicit goal to reach and sustain moderate inflation rates, viewing this as beneficial rather than dangerous. Gross is pointing to the fact that the Fed’s efforts, through monetary tools such as low interest rates and quantitative easing, were calculated moves intended to “reflate” the economy, essentially reversing the deflationary pressures seen during the financial crisis.

Targeting a 2 percent or even slightly higher inflation rate is conceived as building a “safety margin.” When inflation is close to zero or worse, entering negative territory (deflation), the central bank risks losing its ability to stimulate the economy further because nominal interest rates are already near zero, this is called the zero lower bound. In such a scenario, there is little room to maneuver; traditional rate cuts become ineffective, and deflationary spirals can worsen economic downturns. By contrast, if inflation persists at or above two percent, there is more leeway to cut rates aggressively in response to future recessions without immediately hitting that zero boundary.

This policy also reflects an implicit prioritization of full employment and sustained growth over the single-minded pursuit of stable or excessively low inflation. Gross’s assessment underscores that the Fed was not secretly engineering this shift; it was almost explicitly acknowledging its new strategy. The hope was that by creating moderate, predictable inflation, economic actors would be incentivized to spend and invest rather than hoard cash, further supporting recovery and growth. Gross’s remarks capture both the rationale and the potential risks, emphasizing how monetary policymakers weigh long-term stability and crisis management in their ongoing balancing act.