Fed-Style Dual Mandate May Also Suit Sweden, Prime Minister Says

  • Says U.S. Fed's dual mandate works well, could work in Sweden
  • Swedish model to ease labor market barriers to be unchanged

Sweden’s central bank needs to develop its model for setting interest rates and might be better off adopting a dual mandate that includes an employment target, such as the one used in the U.S., Prime Minister Stefan Loefven said.

While emphasizing that any changes are up to the “independent” central bank, the premier said there are grounds for developing the existing monetary policy analysis.

“The U.S. Fed has a clearer such dual mandate and it works well there,” Loefven, a former union boss, said in an interview in Stockholm on Saturday, after a speech. “It should be able to work here. Jobs are the most important thing and it’s good to keep focus on that in different ways.”

The comments add to a debate over the Riksbank’s current mandate, which requires it to keep inflation at about 2 percent. The bank has been forced to cut rates well below zero to revive price growth, which has held near zero for the past three years. Unemployment is just now dipping below 7 percent after staying elevated for close to seven years.

Loefven, who took office last year, has pledged to bring down Sweden’s unemployment rate to the lowest in the European Union by 2020, a mission now challenged by an inflow of record numbers of refugees. Support for his Social Democratic-led bloc has slumped to the lowest level in more than two decades, a recent poll showed.

While joblessness is now falling, “we need to do much more as unemployment is still far too high,” Loefven said.

Meanwhile, the refugee inflow is putting pressure on Sweden to provide places to live amid a housing shortage and jobs to the newly arrived. According to Loefven, the influx means that Sweden will delay achieving a balanced budget, “which also means borrowing will continue.”

“It turns out it was lucky that we reduced the deficit, so that we have some room now,” he said.

But fiscal policy has also come under fire, with the Swedish National Institute of Economic Research on Monday warning that “ambiguities” have put the nation’s budget setting credentials at risk. Sweden needs to create more clarity around its fiscal policy “if the credibility of fiscal policy is to be maintained,” NIER said.

The government has been forced to impose border checks and backtrack on giving out permanent residencies after 80,000 people arrived in the course of just two months, overwhelming its reception services. The number of asylum applications in the Nordic country of 9.8 million people is expected to climb to as much as 170,000 by the end of the year, according to its migration agency.

Loefven held a traditional Christmas speech in Stockholm on Saturday. He made clear that he wasn’t willing to change the Swedish model of high wages and generous benefits to lower barriers to the labor market.

“You can’t lower some peoples’ wages without it leading to lower wages for everyone in the longer term,” he said in his speech. “It’s not possible to abolish some people’s welfare without hurting welfare in general. You can’t attack the Swedish model, without hurting what makes Sweden strong.”

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