The Fed’s Monetary Policy Framework Evaluation in the wake of COVID-19

​The Fed’s Monetary Policy Framework Evaluation in the wake of COVID-19: New Framework Elements, and ad hoc Fiscal-Monetary Coordination

In the fall of 2018, the Fed embarked on a process to conduct a systematic review of its monetary policy framework (MPF). Initiated by Chair Powell and headed up by Vice-Chair Clarida, the process was meant to evaluate the current MPF—the tools, strategies and communications by which the Fed aims to achieve its Congressionally-mandated goals—and consider whether any systematic changes might be beneficial.

The review was prompted by the joint challenges of:

• Low equilibrium interest rates, which imply more frequent trips to the effective lower bound;
• Inflation that has been chronically below the Fed’s two percent objective;
• A slip in long-run inflation expectations, likely related to the prolonged history of below-2% inflation;
• A very low response of inflation to economic activity (a “flat Phillips curve”) that in turn implies a low response of inflation to monetary policy actions;
• A concern that these environmental challenges jointly put both inflation and unemployment goals at risk going forward.

This study group will examine the import of the Fed’s policy changes, the ongoing debate about fiscal/monetary interactions, and more generally the challenge of stabilizing the economy in a low-interest rate, low-inflation environment.
Further details: https://www.hks.harvard.edu/centers/mrcbg/students/sg/fuhrer.2020.fall

Please register using a Harvard.edu email address or request registration by contacting: susan_gill@hks.harvard.edu