For more than a decade that belief has been undermined by inflation that has remained weak despite trillions of US dollars pumped into the world’s biggest economies through quantitative easing programmes and ultra-low interest rates.
But their shared diagnosis paints a similarly troubling picture of a developed world seemingly set in a rut of slow economic growth, low productivity, ageing populations, and perennially weak inflation that may be difficult to coax higher. Get the pace of price increases high enough so inflation-adjusted interest rates can also increase, giving the central banks room to use rate cuts as their main policy tool in times of stress.All three central banks at first adopted simple inflation targets of 2%.They didn’t.
Fed vice-chair Richard Clarida, whose earlier academic research affirmed the advantages of simple inflation targeting, detailed this past January how subsequent studies by New York Fed President John Williams and others concluded more aggressive approaches were needed when interest rates were expected to keep collapsing to zero.
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