Adam Posen, a former Bank of England policy maker, called on central banks around the world to unite in raising their inflation goals.
“The two per cent target, which I co-authored arguments for 40 years ago, has outlived its usefulness,” Posen said at a European Central Bank conference in Frankfurt. “No single major central bank can really do it alone. The stickiness of inflation at low levels, the dangers of the zero lower bound, the credibility problems of not achieving such a target, means we need a more aspirational target.”
Subdued inflation despite massive monetary stimulus in developed nations has been an enigma since the global financial crisis more than a decade ago. Unemployment has tumbled to multi-decade lows in economies such as the U.S., U.K. and Germany but wage pressures remain muted and consumer price growth is stuck stubbornly low.
It’s a topic Posen has hit before, claiming that a failure to reach their policy goals can undermine trust in central banks. The past few years have seen increased political attacks on the institutions, in parallel with rising support for populist parties.
Inflation targeting caught on after being introduced by New Zealand in 1990 and Posen acknowledged that he’d win few central-bank fans with his demand, saying he’d “lose all future invitations” to ECB events.
Wednesday’s conference was to mark the departure of Chief Economist Peter Praet, who said any discussion of the ECB’s strategy “has to be carefully brought.”
ECB President Mario Draghi has previously deflected suggestions that the bank’s goal of “below, but close to, two per cent” should be revised, and told students this month that policy makers “don’t accept defeat” on the target.
One of the contenders to succeed Draghi this year, Finnish Governor Olli Rehn, has called for a review of the ECB’s interpretation of its price-stability mandate. The U.S. Federal Reserve is currently reviewing its approach to monetary policy.