The problem facing all three is that price growth has long stopped behaving as expected, as aging populations and technological advances prevent inflation from meeting their cherished 2% target despite aggressive stimulus measures.
This is leading to a deep rethink by the world’s most powerful central banks, starting from how they define their goal and what tools they use to achieve it – a process that was becoming even more urgent as the world braced for the economic fallout of the coronavirus outbreak.
The meeting of finance leaders from the world’s 20 top economies in Riyadh provided a chance for Federal Reserve Chairman Jerome Powell, ECB President Christine Lagarde and Bank of Japan Governor Haruhiko Kuroda to compare notes.
Lagarde was due to meet Powell later on Sunday, having had a brief exchange with Kuroda the previous day.
“The major central banks all face similar problems, including how to deal with another economic downturn,” said an executive of one of the banks present at the G20 meeting.
“They’ve been discussing this topic for a while. It’s about time they come up with some form of conclusion,” he said on condition of anonymity due to the sensitivity of the matter.
Kuroda has plenty of lessons to offer on the dangers of keeping subdued price growth unattended for too long. He deployed a heavy dose of stimulus in 2013, only to see inflation stagnate at levels well below its 2% target.
Mindful of such dangers, the Fed is in the midst of its framework review that focuses on how it should pursue 2% inflation using tools such as forward guidance.
In its own review, the ECB is all but certain to overhaul its inflation goal, defined as a rate of price growth “below but close to 2%,” to signal it does not see that level as a ceiling.