Members of the European Central Bank’s governing council appear reluctant to follow in the footsteps of the Fed, which laid out a new policy of targeting “average inflation” over an undefined period of time.
The ECB bankers aren’t sure the Fed policy will work, and even if it does, they worry that by providing such long-term guidance they will hem themselves in. But that doesn’t mean that the ECB isn’t looking for a new way to tackle its long-stagnant market.
Like the U.S., the ECB has missed its 2% inflation goal for a decade, but the European bankers worry that going down this route risked encouraging financial markets to jump to the wrong conclusions about future policy decisions based simply on where average inflation happened to be at a given point in time.
Instead, they wanted to retain flexibility.
That’s great, but it hasn’t helped them so far. Eurozone inflation averaged about 1.3% over the last 10 years and currently sits below zero. The bankers might not think the Fed policy works, but they haven’t come up with anything better.