Bank revisionism

The ability to capture significant changes in the evolution of economies and adapt economic policies with sufficient flexibility differentiates the quality of institutions and those who govern them. This attribute has once again been highlighted by the US Federal Reserve, the central bank of that country, with the announcement of its president. Essentially, it has recognized that, of its two statutory objectives, the control of inflation and full employment, the quantitative specification of the first has to be reviewed in the light of the already long evidence that it does not constitute a threat. This means making the subject to that 2% limit of variation of the inflation rate more flexible and allowing a greater interpretive slack in the achievement of this objective of price stability. An absolutely necessary goal for any economy, but in no way incompatible with reducing unemployment.

Inflation not only ceased to be an obsession for central banks since years before the pandemic, but it was precisely the opposite phenomenon that caused the greatest concern, especially after the previous crisis. For the first time in many years, the rates of variation in prices entered negative territories even in traditionally inflationary economies, significantly altering the allocation mechanisms, consumption and saving decisions of companies and families. But also, limiting the room for maneuver of the central banks themselves, forced in some cases to maintain negative interest rates. The review made by the Fed, noting the reduction in the growth potential of its economy and the lasting context of low global interest rates, will surely be assimilated by other colleagues. The consequence will be a higher priority than that goal of full employment, much closer of course to the expectations of the agents, not just families. A much more inclusive approach to institutions that not long ago were considered the guardians of an orthodoxy today revised by the most important of them.