Does the European Central Bank Want High Inflation?

The Spotlight

1 minute read

Oct 19, 2020

European flag flying with a blue sky behind

The Fed desperately wants higher inflation that would exceed its 2% target. Will the ECB follow the lead? It looks like it.

The FED has already established that it will do whatever it takes to get inflation over 2% for a prolonged period of time.

But what is the European Central Bank's position on the matter?

ECB President, Christine Lagarde, addressed this issue in her last press conference:

"In the current environment of lower inflation, the concerns we face are different [than in 2008], and this needs to be reflected in our inflation aim. [...] If credible, such a strategy can strengthen the capacity of monetary policy to stabilize the economy when faced with the lower bound. [...] The usefulness of such an approach could be examined."

There is no need to read between the lines to understand that this approach may be on the table already.

It doesn't seem far-fetched to imagine that the world's central banks will have to ratchet up their efforts to drive higher inflation.

So far, the previous round of monetary stimuli has succeeded in inflating some assets but failed to solve any underlying issues in the real economy.

And with an expected new wave of COVID-19 this winter, it seems safe to bet that we'll only see further increases in monetary expansion.

So, for now, it does look like the ECB is one step closer to joining the Federal Reserve in chanting, "we need higher inflation."


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