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The ECB aims for "2% inflation on average". Inflation and interest rate have a close relationship, so at least for them that's the new normal. I seem to remembe

The ECB aims for "2% inflation on average". Inflation and interest rate have a close relationship, so at least for them that's the new normal. I seem to remember that the Fed and other central banks likely talked about the 2% inflation target. Since 2008, the interest rate was much lower and nobody _quite_ cared, now both inflation and interest rate are higher and the ECB widened the window they consider for their average substantially to straighten things out even though they're way about 2% now. Still, there has been a shift in the finance world, and the target seems to be 2%. Having interest rates and/or inflation at twice that (or more!) seems to justify the label "high" to me.

downWidOutaFite 3y ago
Are you saying that central bank interest rate is targeted to be 2%? If so, I don't believe that is true. The target is 2% inflation and full employment, the interest rate is adjusted to whatever level achieves those goals.
- deleted 3y ago
  [deleted]
- pgeorgi 3y ago
  It's about inflation (see https://www.ecb.europa.eu/mopo/strategy/pricestab/html/index.en.html https://www.ecb.europa.eu/mopo/strategy/pricestab/html/index...), but there's a relationship because their interest rate informs the interest rates across the region they maintain monetarily (practically the baseline, where every other lender adds their margin on top), and the interest rate is the strongest tool they have at their disposal to adjust inflation rate. So the central bank interest rate isn't targeted to be 2%, but it will be somewhere close to it: too high, and they drive inflation well above 2% all on their own. They can stay lower for quite a while (see the past ~15 years) but that was already considered an emergency situation. Before 2008, the ECB moved between 1.5% and 3.75% (https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...) with at most 16 months at a time above 3% which was followed by a bump down to 1%. We'll have to see where things go from now, but the recent shift of their language towards "2% in the _medium_ term" indicates to me that we'll stay in the higher end of the spectrum for a while instead of quickly trending down again.
  - tonfa 3y ago
    > So the central bank interest rate isn't targeted to be 2%, but it will be somewhere close to it: too high, and they drive inflation well above 2% all on their own. Isn't it the reverse relationship? Increased rate decrease the velocity of money and decrease inflation? (At the risk of causing a recession) Central banks have been raising interests to fight inflation so far.

downWidOutaFite 3y ago

Are you saying that central bank interest rate is targeted to be 2%? If so, I don't believe that is true. The target is 2% inflation and full employment, the interest rate is adjusted to whatever level achieves those goals.

deleted 3y ago
[deleted]
pgeorgi 3y ago
It's about inflation (see https://www.ecb.europa.eu/mopo/strategy/pricestab/html/index.en.html https://www.ecb.europa.eu/mopo/strategy/pricestab/html/index...), but there's a relationship because their interest rate informs the interest rates across the region they maintain monetarily (practically the baseline, where every other lender adds their margin on top), and the interest rate is the strongest tool they have at their disposal to adjust inflation rate. So the central bank interest rate isn't targeted to be 2%, but it will be somewhere close to it: too high, and they drive inflation well above 2% all on their own. They can stay lower for quite a while (see the past ~15 years) but that was already considered an emergency situation. Before 2008, the ECB moved between 1.5% and 3.75% (https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...) with at most 16 months at a time above 3% which was followed by a bump down to 1%. We'll have to see where things go from now, but the recent shift of their language towards "2% in the _medium_ term" indicates to me that we'll stay in the higher end of the spectrum for a while instead of quickly trending down again.
- tonfa 3y ago
  > So the central bank interest rate isn't targeted to be 2%, but it will be somewhere close to it: too high, and they drive inflation well above 2% all on their own. Isn't it the reverse relationship? Increased rate decrease the velocity of money and decrease inflation? (At the risk of causing a recession) Central banks have been raising interests to fight inflation so far.