The Federal Reserve (Fed) has adopted a new line of monetary policy what promises revolutionize all the central banks of the world. This is what analysts believe, who take it for granted that the European Central Bank (ECB) it will eventually follow the path set by Jerome Powell and his people when it comes to inflation.
"So far its fight against low inflation in the euro zone has not been successful at all"And that is why "we don't see it unreasonable that the ECB decides to follow in the Fed's footsteps," say Link Securities experts. They also point out that "it remains to be seen whether this bet on the part of the Federal Reserve, contrary to classical monetary theory, does not end up causing a strong inflationary rebound that forces the central bank to back down and withdraw stimuli abruptly", something that would not happen in the short term, but perhaps in the medium / long term.
It should be remembered that the institution chaired by Powell has agreed a "average inflation target", not a fixed one that must be met yes or yes as before, so that the Fed will allow inflation to be "moderately" above the 2% target "for some time" after the periods in which it has been for below that target, as is the case today, to stimulate the economy and employment.
With this decision, the US central bank "could lead the way to other central banks"Income 4 analysts assert, who believe that the ECB will be one of them. In fact, they recall that the chief economist of the European Central Bank, Philip lane, "affirmed that an asymmetric inflation target could be pursued in the future, in line with what was announced by the Fed."
In fact, IG also believe that it is highly likely that the European Central Bank will make decisions on inflation similar to those of the Fed. "It would not be surprising if other large monetary authorities aspire to make similar changes," say their experts, that they point out that "No one would be caught by surprise if the ECB was the next to take this step within the framework of the strategic review initiated at the end of last year, with the arrival of Christine Lagarde at the controls of the entity ".
However, in this firm they point out that the Fed's decision "makes some sense if we take into account that hyperinflation has been no longer a serious risk for the real economy for decades," although they note that this measure "opens the door to a deeper theoretical debate on whether a central bank should change the fundamental objective on which its own existence is based ", since now despite the increase in inflation interest rates will not be touched. The market does not expect increases, at least, for two years, although there are some experts who venture that they will remain immovable until 2024.
KEEP MONETARY CONDITIONS FLEXIBLE
In this sense, Lonbard Odier points out that "it is likely that other central banks will follow suit and introduce an average inflation target in the near future," which "paves the way to keep monetary conditions flexible to last as long as necessary" given the situation that has caused the Covid-19 pandemic. In his view, the Fed change "is more of an evolution than a revolution, as both the Federal Reserve and the European Central Bank have been talking about the symmetry of inflation for a couple of years when defining their mandate on inflation. inflation".
"As economic conditions normalize, support policies will have to adjust at some point. Policy makers are looking for ways to adjust support policies, while avoiding unnecessary tightening of economic and financial conditions," they conclude the experts of the Swiss firm.
Finally, Monex Europe also discovers that the European Central Bank will follow in Powell's footsteps and his. As he states, "Philip Lane said that although the ECB has been successful in stabilizing markets after the volatility observed in March, you cannot be complacent to meet your inflation target", which suggests what your next step will be.
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