The public appearances of the President of the Bundesbank, Jens Weidmann, are always interesting. On several occasions he has been very critical of the extreme expansionary monetary policy measures worldwide. However, he has never formally opposed the actions of the European Central Bank.
Weidmann leaves us with three messages this week. First, that the limit of expansionary monetary policy is price stability. Second, the importance of respecting the boundary between fiscal policy and monetary policy. And finally, he made it clear that monetary policy is not at the service of financial markets.
His first two ideas are not new, but his latest warning is, which coincides with the Fed’s warnings (Fisher) about the potential excesses that expansionary monetary policy causes in the valuations of certain financial assets. In search of goods and services inflation, central banks may cause financial asset inflation.
