Shifting central banks’ inflation targets so they don’t keep raising interest rates is a dangerous game, warns the former US treasury secretary.
| Don’t go weak on monetary policy now just as you are making progress on reducing inflation.
“Is it really worth getting 1 per cent less inflation, with maybe not a recession, but at least a slowdown?” Mr Blanchard asked the Peterson Institute for International Economics on Tuesday . “I think that it gets harder as you start moving towards 3 [per cent], a level where prices double in a generation ... that seems harder to me to call price stability,” he said.
He said lowering real rates were more likely to stoke “the risks of various kinds of perpetuation of zombie firms and creation of financial bubbles”.
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