Top central bankers are facing the first full-on test of how well that approach to monetary policy works once prices have erupted, and how strictly they’ll enforce it if damage to their economies intensifies. READ:
WASHINGTON/FRANKFURT/LONDON — Top central bankers, who credit the use of a 2% inflation target with anchoring decades of stable prices, are facing the first full-on test of how well that approach to monetary policy works once prices have erupted, and how strictly they’ll enforce it if damage to their economies intensifies.
“Looking ahead, we may face a period of structurally higher inflation compared to the past two decades. The deflationary impact of localization is dissipating, and there will be inflationary pressures from global trade, climate transition, demographics and politics,” said Claudio Borio, head of the monetary and economic department at the Bank for International Settlements, an umbrella group for central banks.
“Let me be quite clear, there are no ifs or buts in our commitment to the 2% inflation target,” Bank of England Governor Andrew Bailey said last year. “That’s our job, and that’s what we will do.”The Fed is expected at its two-day policy meeting this week, as it has each year since 2012, to recommit to 2% inflation as the rate “most consistent over the longer run with the Federal Reserve’s statutory mandate” from the US Congress to promote “stable prices” alongside maximum employment.
At the same time, they wanted an inflation level consistent with long-term price stability, what former Fed Chair Alan Greenspan in one mid-1990s debate defined as a “state in which expected changes in the general price level do not effectively alter business or household decisions.”
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