The Future of Monetary Policy: Embracing the Unconventional?
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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?Â
