The European Central Bank and the US Federal Reserve’s new monetary-policy strategies now look like a case of adapting the general staff manual to fight the last war. The recent sharp increase in inflation on both sides of the Atlantic means that central bankers must again concentrate on their traditional task.
BRUSSELS – In recent decades, central bankers’ job had become somewhat boring and frustrating. They were given independence in the 1990s, because that seemed the best way to ensure price stability. The prevailing view (then) was that leaving governments in control of monetary policy would result in economic stimulus that ultimately fueled higher inflation without any appreciable increase in output or employment. The solution was to appoint prudent technocrats whose only task would be to set and adhere to an inflation target.
BRUSSELS – In recent decades, central bankers’ job had become somewhat boring and frustrating. They were given independence in the 1990s, because that seemed the best way to ensure price stability. The prevailing view (then) was that leaving governments in control of monetary policy would result in economic stimulus that ultimately fueled higher inflation without any appreciable increase in output or employment. The solution was to appoint prudent technocrats whose only task would be to set and adhere to an inflation target.