From Currency Stability to Policy Making, ECB Agrees to Raise Inflation Target to 2%

Posted on 07/07/2021

At a special meeting, policymakers at the European Central Bank (ECB) agreed to raise their inflation goal to 2% and allow space to overshoot it when needed, according to major news outlets. The current formula is below but close to 2%. This major change in tactics is reversing years of below-target inflation, which had weighed on the euro area’s economic potential. The ECB’s process covered a wide range of other policy issues including how to combat climate change, the interaction of fiscal and monetary policies, employment trends, and globalization. This is all part of an 18-month strategy review.

The Federal Reserve concluded its own strategic review in 2020 with a decision to switch to average inflation targeting, meaning it would overshoot its 2% goal after periods of low-price growth.

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