The Murky Future of Monetary Policy

Mickey D. Levy () and Charles Plosser ()

Review, 2022, vol. 104, issue 3, 178-188

Abstract: In August 2020, the Federal Reserve unveiled its new strategic framework. One major objective of the Fed was to address its concerns over the potential consequences for the conduct of monetary policy when the policy rate was constrained by its effective lower bound. This article concludes that there are significant flaws in the new strategy and that it encourages a more discretionary approach to monetary policy and increases the risks of policy errors. The new framework is an overly complex and asymmetric flexible average inflation targeting scheme that introduces a significant inflationary bias into policy and expands the scope for discretion by broadening the Fed's employment mandate to "maximum inclusive employment." In a postscript, the article describes how quickly the flaws have been revealed and urges a reset toward a more systematic and coherent strategy that is transparent and broadly understood by the public.

Keywords: monetary; policy (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlrv:94271

DOI: 10.20955/r.104.178-88

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