lundi 23 mars 2015
Fischer: Monetary Policy Lessons and the Way Ahead
Posted on 09:50 by nice news
For over six years, the federal funds rate has, effectively, been zero. However it is widely expected that the rate will lift off before the end of this year, as the normalization of monetary policy gets underway.
The approach of liftoff reflects the significant progress we have made toward our objectives of maximum employment and price stability. The extraordinary monetary policy accommodation that the Federal Reserve has undertaken in response to the crisis has contributed importantly to the economic recovery, though the recovery has taken longer than we expected. The unemployment rate, at 5.5 percent in February, is nearing estimates of its natural rate, and we expect that inflation will gradually rise toward the Fed's target of 2 percent. Beginning the normalization of policy will be a significant step toward the restoration of the economy's normal dynamics, allowing monetary policy to respond to shocks without recourse to unconventional tools.
I would like to take this occasion to look back on some lessons learned during our time at the effective lower bound on the interest rate, and also to look forward.1
Monetary Policy since the Crisis
Let me first take a step back in time. Prior to the crisis, the financial system was more fragile than we realized. Key vulnerabilities included excessive leverage, overdependence on short-term funding, and deficiencies in credit ratings, underwriting standards, and risk management. Importantly, interconnections across financial institutions heightened the risk of contagion through cascading losses. Some of these interconnections emerged from the use of complicated financial instruments that created seemingly safe and liquid assets. At the time, it was common to say that risk was being dispersed and allocated to those best able to bear it. But rather than distributing risk widely, these instruments concentrated risk on the balance sheets of a relatively small number
The approach of liftoff reflects the significant progress we have made toward our objectives of maximum employment and price stability. The extraordinary monetary policy accommodation that the Federal Reserve has undertaken in response to the crisis has contributed importantly to the economic recovery, though the recovery has taken longer than we expected. The unemployment rate, at 5.5 percent in February, is nearing estimates of its natural rate, and we expect that inflation will gradually rise toward the Fed's target of 2 percent. Beginning the normalization of policy will be a significant step toward the restoration of the economy's normal dynamics, allowing monetary policy to respond to shocks without recourse to unconventional tools.
I would like to take this occasion to look back on some lessons learned during our time at the effective lower bound on the interest rate, and also to look forward.1
Monetary Policy since the Crisis
Let me first take a step back in time. Prior to the crisis, the financial system was more fragile than we realized. Key vulnerabilities included excessive leverage, overdependence on short-term funding, and deficiencies in credit ratings, underwriting standards, and risk management. Importantly, interconnections across financial institutions heightened the risk of contagion through cascading losses. Some of these interconnections emerged from the use of complicated financial instruments that created seemingly safe and liquid assets. At the time, it was common to say that risk was being dispersed and allocated to those best able to bear it. But rather than distributing risk widely, these instruments concentrated risk on the balance sheets of a relatively small number
Fischer: Monetary Policy Lessons and the Way Ahead
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