Should-Read: Martin Sandbu: Central bank rush to ‘normalise’ monetary policy is ill-advised

Should-Read: Martin Sandbu: Central bank rush to ‘normalise’ monetary policy is ill-advised: “An understanding to “normalise” together, if one exists, would not be a suicide pact… https://www.ft.com/content/3ad81df6-6161-11e7-8814-0ac7eb84e5f1

…unlike the universal and premature switch to severe fiscal consolidation in 2010. But it would be one of self-mutilation. As Gavyn Davies explains in his latest column, the global recovery is showing up in economic growth but not in accelerating inflation. Many had expected that… inflation would pick…. But there is no sign of this…. This looks like a positive global supply shock that would push activity and inflation in the opposite direction, as productive capacity expands more than anticipated. If that is indeed the cause of the present “lowflation” regime, monetary policy ought “to shift policy in the same direction as the signal from inflation, in this case towards less tightening”. That is not happening…. We might all be better served by ditching the term normalisation altogether. It implies, incorrectly, that there is something wrong or excessive about the current monetary policy stance. If today’s policy conditions are abnormal, it is an abnormality that policymakers should embrace rather than avoid…