In February, the Janet Yellen era at the Federal Reserve will conclude and the Jerome Powell era will begin. What will the change mean for US monetary policy? Advanced economies are reveling in increasing growth and bright economic outlooks, yet central banks are only very slowly normalizing monetary policy to pre-crisis levels. With inflation still well below target, interest rates are expected to remain low (and negative in some countries), and engorged balance sheets are only very slowly being whittled down. Does the low-inflation economy demand that these unconventional approaches to monetary policy become standard tools of central banks’ arsenal? Or can central bankers throw off the shackles of the Phillips Curve mentality and insist on normalization?
Background reading and multimedia
- Draining of QE Punchbowl Sobers Up Bond Bulls
Robin Wigglesworth, Financial Times, January 2, 2018
- Monetary Policy Decisions in 2018: Here's What to Expect
Silvia Amaro, CNBC, December 27, 2017
- Bring Politics Back to Monetary Policy
Jacqueline Best, Foreign Affairs, December 6, 2017