The theory of the natural rate instructs policy makers that inflation is an unmitigated bad and that they should aim for zero inflation. The optimal rate of inflation is that rate associated with minimum sustainable unemployment. The reason is that inflation helps grease the wheels of adjustment in a dynamic economy. Such economies are subject to constant shifts of demand between sectors, and it is easier to accomplish the needed adjustments by raising prices and wages in expanding sectors rather than by forcing them down in contracting sectors. Conversely, too much inflation creates economic distortions in financial markets, which throws sand in the wheels of adjustment.
High unemployment is costly.
Though the optimal rate of inflation is not known precisely, we can say that policy makers should err on the side of slightly more inflation rather than slightly less. Erring on the low side means higher unemployment, and that imposes serious economic losses. The costs of higher inflation, on the other hand, are hard to measure. Full employment helps those at the bottom. American society is economically divided, and that divide has gotten bigger over the past 25 years.