On Dec. 12, Ben Bernanke, President of the Federal Reserve Board (FED) of the USA extended the Fed’s catalogue of objectives by a significant step: as long as the unemployment rate does not fall below 6.5%, the Fed will do anything to stimulate growth, keep the interest at zero and pump around 85 bill $ a month into the economy. During that period, the (former) inflation target of 2.5% my be breached – wow!
On Dec. 13, Mark Carney, the Canadian Central Bank governor and designated Bank of England Governor, lectured that in the future central banks might go away from inflation targeting and orient their policy on nominal GDP (which is the product of GDP at fixed prices and the price deflator). Again, a significant step forward towards growth stimulation and relativization of the inflation target.
Nothing similar has been heard from Mario Draghi, governor of the European Central Bank, who will (at least nominally) stick to its sole inflation target. But, of course, the ECB under Draghi has done a lot to stimulate the EU/EZ economy, especially since he stated that ECB would do anything to prevent a recession. But Draghi on 13.12. also asked for an extension of ECB’s competency, in order to be able to wind down insolvent European banks.
All this is quite remarkable. It means that Central Banks increasingly and more openly see themselves as part of the total economic policy instrument kit. And, it is true, that during the recent crisis the ECB has been the only EU institution fully functioning and taking decisions when necessary. But it seems that now Central Banks also come out into the open with what they have been practicing more or less clandestinely during the past years. To extend their policy objectives to growth, or even more daring, to unemployment reduction, is a significant step – and very welcome. Of course, we know that in Europe there is a long way to go. The German Constitutional Court in Karlsruhe has been very restrictive in its interpretation of such and similar steps and will continue to do so. Mario Draghi is called upon to continue his surreptitious attempts to overcome the Eurozone economic and banking crisis.