EUROPEAN CENTRAL BANK
(Bloomberg) — The European Central Bank would be stuck
with record-low interest rates for another five years if it
decided to adopt a policy of temporary price-level targeting
floated by former Federal Reserve Chairman Ben Bernanke — with
potentially negative consequences.
Joerg Kraemer, Commerzbank’s chief economist, argues that
the ECB would face “the risk of dangerous bubbles” in markets
and real estate if it kept its benchmark rate at zero for much
longer in pursuit of faster price growth.
Central banks around the world have struggled to bring
inflation back into line with their goals since the financial
crisis, triggering alternative policy suggestions. In 2017,
Bernanke highlighted the idea that officials could allow
inflation to overshoot target to make up for previously weak
Olli Rehn, governor of Finland’s central bank and one of
the contenders to succeed Mario Draghi as ECB president in
November, embraced the concept last year. He said it needed a
thorough analysis as part of a policy review he’s advocating.
“The fixation on preventing low inflation rates is
exaggerated,” Kraemer wrote in a note published Wednesday.
“Instead, the ECB needs a strategy of comprehensive
stabilization” that would also focus on financial stability.
The ECB last month prolonged the period of record-low rates
until at least the end of this year, and Draghi said that a
weaker economy will delay but not derail the return of inflation
to the goal of just under 2 percent. The Governing Council is
scheduled to meet next Wednesday.
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