The European Central Bank needs a more realistic and flexible mandate, defined by a broader price-stability objective. But timing is everything: If the ECB tries to move the goalpost while it is missing the shot, the blow to its already diminished credibility could be serious.
BERLIN – The European Central Bank’s decision in September to pursue more monetary-policy easing was controversial, with one board representative, from Germany, resigning over the move. But one of the most remarkable features of the ECB’s position has not gotten enough attention: the admission that inflation expectations have become de-anchored, and that without fiscal-policy support, the central bank will probably fail to fulfill its price-stability mandate for the foreseeable future.
BERLIN – The European Central Bank’s decision in September to pursue more monetary-policy easing was controversial, with one board representative, from Germany, resigning over the move. But one of the most remarkable features of the ECB’s position has not gotten enough attention: the admission that inflation expectations have become de-anchored, and that without fiscal-policy support, the central bank will probably fail to fulfill its price-stability mandate for the foreseeable future.