21st Century Monetary Policy by Ben S. Bernanke

Author:Ben S. Bernanke [Bernanke, Ben S.]
Language: eng
Format: epub

FED LISTENS: THE STRATEGY REVIEW

It is not uncommon for central banks to periodically review the intellectual frameworks or strategies that guide their policy choices. The Bank of Canada reviews its framework every five years, and the Bank of Japan’s review in 2016 led to major changes in its policy approach, including a decision to directly target longer-term interest rates (“yield-curve control”). The Fed had done such reviews in a piecemeal way, most recently before we introduced the inflation target in 2012. However, the policy challenges after the financial crisis had absorbed the full attention of policymakers and Fed staff, precluding a more comprehensive self-examination.

By 2018, with the economy in relatively good shape and with the funds rate lifted off zero, it seemed an opportune moment to look back at the past decade and draw some lessons. In November Powell announced that the Fed would in the next year “review the strategies, tools, and communication practices” it used to pursue its mandate. The review, Powell said, would include “outreach to a broad range of interested stakeholders.”25

Powell put Vice Chair Clarida in charge of the review. Clarida, in a February 2019 speech, said the review would take the Fed’s statutory dual mandate as a given. He added that the Committee’s existing 2 percent inflation target was “most consistent” with the mandate—thereby ruling out proposals by some economists to raise the target as a means of pushing the neutral policy interest rate (R*) further above its effective lower bound.26 Clarida said that the review would focus on three questions. First, should the Fed stick with the inflation-targeting strategy adopted in 2012? In particular, could the policy framework be changed in a way that would help the Fed better cope with the constraint of the effective lower bound? Second, the new tools of forward guidance and quantitative easing had been effective after the crisis, but, with increased concerns about the lower bound, were they enough? To ensure that sufficient stimulus could be delivered when needed, should the Fed adopt additional tools, including several that were already in the toolkits of other major central banks? Finally, should the Fed modify its approaches to communicating about policy?

Powell’s promised outreach was realized in fifteen public “Fed Listens” events at the Board in Washington and at Reserve Banks around the country. The lists of invited participants went well beyond the Fed’s more-typical advisers—academic economists, market participants, bankers, and businesspeople—and included community development specialists, union officials, leaders of groups representing minorities and senior citizens, and average citizens. The events gave policymakers a chance to make the case that the Fed policies are intended to benefit the broad public, not special interest groups like Wall Street bankers. This message dovetailed with Powell’s efforts, in press conferences and testimony, to explain monetary policy decisions “in plain English.” Policymakers attending the Fed Listens events also learned more about public perceptions of the Fed and its policies. They were told repeatedly that tight labor markets had widespread benefits. With the demand for workers

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.