The rich world’s central banks need a new target
Like other areas of public policy, central banking is prone to fads and fashions. From limits on money-supply growth to pegging exchange rates, orthodoxies wax and wane. Yet the practice of inflation-targeting has proved remarkably long-lived. For almost three decades, central bankers have agreed that their best route to stabilising an economy is to aim for a specific target for inflation, usually 2% in advanced economies and a little higher in emerging ones.
This orthodoxy is still intact in many emerging economies where inflation is yet to be tamed. But in the rich world the consensus is beginning to fracture. As central bankers gather this weekend for their annual shindig in Jackson Hole, Wyoming, John Williams, head of the San Francisco Fed, has caused a stir by suggesting it is time for a rethink on what central banks should aim for. He is right.
The Economist