The Federal Reserve, the European Central Bank and the Bank of England all preside over inflation rates that have surged to quadruple their 2% targets. One of their brethren is highly skeptical of their chances of success in calming price increases. It may turn out that they’ve been lucky rather than good in achieving price stability in recent years — and their luck has run out.
A few weeks ago, Jeremy Rudd, a senior economist at the Fed, published a paper that does little to inspire confidence in the ability of policy makers to prevent stagflation from afflicting their economies. Moreover, one of his conclusions — that anchoring inflation expectations has little effect on prices — suggests the current mania among central bankers for raising interest rates may exact a cost on growth without a corresponding benefit of achieving their chief policy goal.
