Report
Is the credibility of the Federal Reserve and the ECB suffering?
The Federal Reserve and even more so the ECB have been slow to respond to inflation, and have had only a weak response to combat rising prices. It is therefore to be feared that their credibility (in the usual sense, the conviction of private economic agents that the central bank will not allow inflation to rise in the long term) has suffered or been affected. We therefore analyse short-term and long-term inflation expectations. If central bank credibility is affected by the recent inflation episode, medium- and long-term expected inflation is increased. We see a slight increase in all medium- and long-term inflation expectations (3-year, 5-year and 10-year) of 50 to 100 basis points. So there is a slight loss of central bank credibility associated with their weak response to inflation in 2021-2022-2023.
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Natixis
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