Just listened to a Bloomberg interview clip (with a former ECB Chief Economist) associated with today’s announcement that the European Central Bank (ECB) will allow an “overshooting” of its raised inflation target going forward. I.e., they raised their target to 2% and, at the same time, stated that they’ll allow inflation to exceed it going forward.
The interviewer asked what in essence is the same rhetorical question posed to the Fed when they announced last year their willingness to allow inflation to run hot.
That question being: “What makes you think if they couldn’t hit 2% inflation before, that this time is different, what’s different?”
My take today is the same as it was (still is) when the Fed made their announcement. That is, we’re not remotely talking arrogance here on the part of central bankers, we’re talking utter fear. For, as inflation rises, and, therefore, as the world looks to them to tighten monetary conditions, they fully realize that they’ve taken policy (read inflating historic asset bubbles) to the proverbial point of no return. If they, for example, raise interest rates anytime soon, they know the markets will come down all around them, with them catching all the blame.
From the attached Bloomberg article:
“The revamped strategy could give officials the justification for sustaining ultra-loose monetary policy for longer…”
Yep, you can take that one to the bank!
And, yes, that’s bullish for Eurozone stocks…