Central banks need to upgrade policy mechanisms without frightening the Bond Vigilantes

 


How might policymakers alter their 2% inflation targets without getting attacked by the bond vigilantes for playing fast and loose with their mandates? 

Too little attention was paid at the start of the decade to the likely hangover from a heady cocktail of cutting interest rates close to zero and increased bond buying via quantitative easing — at the same time as governments delivered a bucketload of fiscal stimulus.
Marcus Ashworth Bloomberg September 29, 2025
https://www.bloomberg.com/opinion/articles/2025-09-29/how-to-improve-inflation-targets-without-inciting-the-bond-vigilantes


Should policy be permanently locked into a target that now looks wrong out of fear that changing it will make policymakers look weak?

The Fed could adopt a policy of strategic hypocrisy, insisting that its target hasn’t changed while in practice allowing inflation close to 3 percent for several years; then, once it has become clear that such a policy won’t allow runaway inflation, finally change the formal target.
Paul Krugman New York Times 22 August 2023
https://englundmacro.blogspot.com/2023/08/many-economists-now-believe-that-2.html


Huge US Budget Deficit fear that the bond vigilantes will reawaken
https://englundmacro.blogspot.com/2024/06/huge-us-budget-deficit-fear-that-bond.html

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