By Richard Clarida
“Restrictive for longer” is now the mantra as monetary policymakers seek to bring inflation reliably to target.
Summary:
- U.S. Federal Reserve policy has helped bring down U.S. price inflation, but before inflation is firmly on the path to the 2% target, we may see higher unemployment than the Fed is projecting.
- At the European Central Bank (ECB), the bar for additional rate hikes has increased, but inflation trends suggest some risk the ECB needs to hike further.
- Among the major economies, the U.K. faces perhaps the most stubborn inflation. It held its policy rate steady at its latest meeting, but maintained it will stay sufficiently restrictive for sufficiently long.
- The Bank of Japan (BOJ) is equally focused on price stability, but with the aim of ending decades of disinflation. If inflation data are supportive, it could end its yield curve control policy as early as this year.
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