The European Central Bank (ECB) has set a new inflation target of 2%.
This marks a historic milestone in the history of the ECB.
In 1998, the ECB was founded. Back then, the central bank defined an inflation target limit of 2%.
The ECB defined the inflation target as an absolute limit to prevent inflation.
In 2003, however, the ECB defined its inflation target “below, but close to, 2%”.
The reason: Because of a strategic review. Also, the former chief economist Otmar Issing was involved in this review.
ECB president Christine Lagarde stated:
“The new wording makes it clear that two percent is not an upper limit.”Christine Lagarde, ECB president
Christine Lagarde’s statement clarified that the ECB is open to increase the inflation target even more if necessary. End of May 2021, the Deutsche Bundesbank estimated that the inflation rate in Germany could reach 4% “temporarily.”
But still, the ECB did not choose the same path as the Federal Reserve Bank (FED). The FED formally committed to a flexible average inflation target.
ECB president Lagarde claimed:
Central banks are setting the inflation targets higher. Because of this, interest rates decrease even more.
The ECB’s and FED’s current monetary policy can be described with one word: wild!
How this will impact the stock and crypto markets is yet to see.