Daily Management Review

Fed And ECB Have No Desire To Change Their Inflation Target


The heads of the two institutions dispelled on Friday any hopes that the 2% inflation target long targeted by the U.S. Federal Reserve and the European Central Bank might be subject to adjustment.
Both Fed Chair Jerome Powell and ECB President Christine Lagarde made it clear that they shared the same goal of bringing inflation back down to 2% when they gathered in Jackson Hole, Wyoming for the annual Federal Reserve Bank of Kansas City economic symposium.
"Two percent is and will remain our inflation target," Powell said in his keynote address. "We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to that level over time."
As economies began to emerge from pandemic lockdowns, inflation skyrocketed and a rise in demand was stymied by supply chain breakdowns and labour market restrictions.
Inflation has decreased but has not yet reached the 2% target in either Europe or the United States despite strong interest rate rises by the Fed and the ECB among others.
Lagarde was questioned about "moving the goalposts" to reflect this new reality during lunch. She declined, just like Powell.
"We are playing a game; there are rules; don't change the rules of the game halfway through -- I'm not saying that we are halfway through, probably a bit more than that," Lagarde said. Increasing the target could undermine efforts to anchor inflation expectations, she said, and anchored expectations are key to keeping inflation constrained.