Some advice for central bankers: Keep it simple
– even if it means turning away from other worthy social goals that central banks have felt increasing pressure and desire to address in recent years. Thepandemic and its economic aftermath have demonstrated that “knitting,” as Mr. Powell called it, requires more singular focus than many monetary policy makers had come to believe.
The combination of central bank independence, with a narrow, government-sanctioned focus on inflation targeting, worked very well for about a quarter-century. In fact, it all worked so well that we became used to low and stable inflation, with low and stable interest rates. It looked like central banks had successfully defeated inflation once and for all.
Arguably, this combination of hubris about their ability to keep inflation under control, and a growing desire to stretch central bank mandates beyond inflation control and into new areas of social good, contributed to central banks’ late response to the inflation build-up in 2021 and into 2022.
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