President Joe Biden’s massive fiscal stimulus is being carefully watched around the world. But it is not the only economic experiment taking place in Washington that could inspire policy rethinking elsewhere. The Federal Reserve’s shift in regime last summer — to become more tolerant of inflation rising above its target — is now making its influence felt in the European Central Bank’s strategy review.
In an interview with the Financial Times, Olli Rehn, governor of the Bank of Finland, has broken cover to endorse a Fed-style reform of the ECB’s own policymaking.
Last year, the Fed chair Jay Powell announced two important shifts in the US central bank’s approach to setting monetary policy. It now looks at inflation as an average over time, rather than as a snapshot at a particular moment. In the current context, with inflation having fallen short of the 2 per cent target for most of the time since the global financial crisis, that would allow inflation…