Instead of seeking to control inflation indirectly, central banks aim expressly at price stability.
This has created stability but at the price of a reign of fear.
ECB's treaty-prescribed duty is not to keep the economy at full steam but to maintain price stability, which it defines as a rate of inflation of no more than 2%.
The ECB, anxious to establish its credibility and build a reputation as a guardian of price stability, bristles at any attempt, whether from outside Europe, or from European political leaders, to tell it what to do.
In a semiannual report to Congress, Fed Chairman Ben Bernanke told politicians that commodity-price inflation, and oil prices more specifically, could pose a threat to economic growth and price stability if sustained at high levels, while at the same time reassuring markets and politicians that inflation remained low and expectations stable.
The medium-term goal of price stability might be put at risk.
Sentiment was underpinned for much of the day on suggestions that the European Central Bank is willing to exchange its holdings in Greek government bonds with the European Financial Stability Facility at a discounted price, which would allow Greece to tap the first tranche of its second bailout.
For that matter, it is fair to ask whether the Fed should be promoting inflation at all, given its dual mandate of price stability and full employment.
Just wait and see, they asked the general public, telling them that as time passes, both unemployment and output would move back to levels at or around those consistent with their dual mandate of price stability and maximum employment.
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His message was that experience has shown that inflation targets are the best way to deliver price stability and implicitly that governments mess with this mandate at their peril.
While the report showed an unattractive mix of slow growth and rising inflation -- stagflation, is one way to look at it -- it didn't indicate a crisis either for employment nor for price stability, the Fed's two concerns.
Assuming price stability and limited government, we expect growth to rebound after a recession, recouping at least part of the lost output.
"To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities, " the FOMC says, adding it will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.
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