ECB sources headlines crossing
An ECB source is on the wire saying:
- Several ECB policymakers reluctant to follow Fed with average inflation target
- Some ECB policymakers fear average inflation target would tie their hands, create unrealistic expectations
- the 4 policy makers on the governing Council (supposedly both dovish and hawkish members) also expressed doubts about whether Orthodox inflation theory still applied in economies where prices have long stagnated despite interest rates close to or below 0%
- lean toward 2%, symmetric target
- policymakers feared that going down a average inflation target risks encouraging financial markets to jump to the wrong conclusions about future policy decisions based simply on where the average happened to be at a given point in time
- instead they wanted to retain the flexibility to judge each situation on its own merits
- we want flexibility so and average target would not really give us a benefits
- some of the sources noted that the Fed had had a hard time communicating its new pot strategy, and that left investors and the broader public confused
The ECB is in the midst of reviewing its strategy in the wake of a similar review by the Federal Reserve. Inflation has been consistently below its 2% target for nearly a decade. The pandemic is pushing inflation toward negative territory.
