Targeting the Targeters
In order to anchor inflation expectations effectively, inflation targets must be realistic. But that is far from the case these days for the Bank of England, and even for the European Central Bank, while US Federal Reserve officials are increasingly worried that inflation expectations could become unmoored.
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LONDON – Speaking in the happier economic times of 2005, Mervyn King – then, as now, Governor of the Bank of England – stressed the importance of entrenching public expectations of stable, low inflation. He warned that, “if you let inflation expectations drift too far away from the target, you can end up in quite serious difficulty with a costly process to bring them back again.” King must now be a worried man.