Former central bankers discuss monetary policies

The 2024 Bund Summit in Shanghai, one of China's most important financial gatherings of the year, concluded on Saturday. During a forum at the summit, former central bank officials from the U.S., Japan, and Europe presented their views on current monetary policies.

Facing an uncertain economic outlook, several countries have adopted various monetary policies.

Donald Kohn, former vice-chairman of the U.S. Federal Reserve, said that the U.S. Fed is about to initiate a shift in monetary policy from one that has been restrictive for a while to one that is easing like many other central banks.

He further analyzed that inflation has come down significantly over the past few years, though it has not yet gotten to the Fed's target of two percent, while the labor markets have rebalanced quite substantially. The U.S. has come out of the extremely tight labor market from 2021 to 2022 and is now roughly balanced, he added.

Jean-Claude Trichet, former president of the European Central Bank (ECB) said the ECB has augmented rates 10 times, and the U.S. augmented rates 11 times, which means central banks have taken serious steps to control inflation.

Trichet mentioned that the ECB decreased rates by 25 basis point in June, adding that the inflation has gone down to 2.5 percent.

But the problem for the ECB is that core inflation is not giving signs this year that it is going down as rapidly as was expected, so the core inflation number of 2.8 percent sits largely above the two percent target, he added.

As for Japan's monetary policy, Kuroda Haruhiko, former governor of the Bank of Japan, said that Japan's inflation dynamics have always been different from those in the U.S. and Europe.

He said, firstly, Japan witnessed a 15 year-long deflation period from 1998 through 2012. In 2013, the Bank of Japan decided to introduce a two percent inflation target, then the Bank of Japan introduced the so-called Quantitative and Qualitative Monetary Easing policy to achieve this target.

Deflation was overcome during the following 10 years, from 2013 to 2023, but the inflation rate fluctuated around one percent, during which period no substantive increase was reported in the wages of workers. Furthermore, the situation changed dramatically when the Ukraine conflict erupted in 2022, which has led to an increase in commodity prices, and a depreciation in the Japanese Yen. In 2023, consumer price inflation subsequently reached three percent

Haruhiko stated that the Bank of Japan has decided upon an normalization of monetary policy, raising the short term policy rate from a negative 0.1 percent to positive 0.1 percent. He added that the bank will continue this normalization process by raising policy rate gradually toward the neutral rate, estimated between one percent to two percent, significantly lower than the target.