The Murky Future of Monetary Policy

Thursday, October 1, 2020

Economics Working Paper 20119

Abstract: The Federal Reserve first published a “Statement on Longer-run Goals and Monetary Policy Strategy” in January 2012. The purpose was to enhance transparency and accountability by clarifying the interpretation of the statutory mandates established by Congress. The Fed announced in November of 2018 its intention to review the strategies, tools, and communication practices it uses to pursue its mandates. The result of this review was revealed in a revised “Statement on Longer-Run Goals and Monetary Policy Strategy” released in August 2020. The revised policy document makes some significant changes to the Fed’s interpretation of its statutory dual mandates. In our view, explained in this paper, the consequences are likely to be a more discretionary and less predictable or systematic approach to monetary policymaking.

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