The great policy rotation

For the last two decades, advanced country central banks have been focussed on price stability and have played the first line of defence in stabilising the economic cycle whereas fiscal policy has played backup, focussing more on fairness and efficiency. This same approach has been applied since the global financial crisis with fiscal policy relegated to the back seat since 2010 because growth hadn’t collapsed and there has been a desire to stabilise public debt. But we are starting to see debate about whether a new approach is needed. Some have suggested that inflation targets should just be lowered but this “changing the goal post” approach will just lock in very low inflation and leave us vulnerable to deflation in the next downturn. In this edition of Oliver’s Insights, I explore the different options and the implications for investors. (VIEW LINK)