We had another bad inflation report last week. Inflation over the past 12 months exceeded 8 percent, a level that evokes memories of America's Great Inflation of the 1960s and '70s. From the beginning of 1966 through 1981, the Consumer Price Index rose, on average, by more than 7 percent per year, peaking at over 13 percent in 1980. This ...

Congress must act decisively to avoid repeating mistakes of the recovery from the Great Recession. The coronavirus pandemic has set loose a recession of shocking speed and severity. In the coming months, the actions taken by both the public and the private sectors will have economic and public health repercussions that will reverberate for ...

Reviving crisis-era programmes is a first step but the central bank may need to buy corporate bonds. Around the world, policymakers are grappling with the effects of the devastating coronavirus.  Experts on public health are taking the leading role, as they should. For their part, fiscal policymakers are helping to fund the public health ...

Since the 1980s, interest rates around the world have trended downward, reflecting lower inflation, demographic and technological forces that have increased desired global saving relative to desired investment, and other factors. Although low inflation and interest rates have many benefits, the new environment poses challenges for central ...

The economy functions best when the central bank is free of short-term political pressures. As former chairs of the board of governors of the Federal Reserve System, we are united in the conviction that the Fed and its chair must be permitted to act independently and in the best interests of the economy, free of short-term ...

Why was the Great Recession so deep? Certainly, the collapse of the housing bubble was the key precipitating event; falling house prices depressed consumer wealth and spending while leading to sharp reductions in residential construction. However, as I argue in a new paper and blog post, the most damaging aspect of the unwinding bubble was that ...

Although the U.S. economy appears to be on a positive trajectory, history suggests that at some time in the next few years we may again face a slowdown, with a weakening job market and possibly declining inflation. Given that the historically low level of short-term interest rates is likely to limit the scope for conventional rate cuts, how ...

The U.S. economy is currently growing and creating jobs, a situation I hope and expect will continue. We can't rule out the possibility, though, that at some point in the next few years our economy will slow, perhaps significantly. How would the Federal Reserve respond? What tools remain in the monetary toolbox? In this and a subsequent post ...

China's central banker, Zhou Xiaochuan of the People's Bank of China (PBOC), and other top Chinese officials recently launched a communications offensive to persuade markets and foreign policymakers that no significant devaluation of the Chinese currency is planned.1 Is the no-devaluation strategy a good one for China? If it is, what does ...

At Janet Yellen's recent hearing before the House Financial Services Committee, a few representatives expressed concern that the Federal Reserve is making interest payments to banks. Specifically, the Fed uses authority granted by Congress in 2008 to pay interest on the reserves that banks hold with it. Total payments to banks last year were ...

This post is the third of three based on my Mundell-Fleming lecture, which discussed the international effects of Fed policy (see here for a video of the lecture and here for a paper that expands on the lecture's themes). In the two previous posts (see here and here), I addressed a pair of criticisms of recent U.S. monetary policy: (1) that ...

This is the second of three posts based on my recent Mundell-Fleming lecture at the International Monetary Fund (see here for a video of the lecture and here for a paper that elaborates on the lecture's themes).
In the first post of the series, I challenged the claim that in recent years the U.S. (via the Fed) has waged a "currency war," ...

The financial crisis and its immediate aftermath saw close cooperation among the world's policymakers, especially central bankers. For example, in October 2008, the Federal Reserve coordinated simultaneous interest-rate cuts with five other major central banks. It also established currency swap arrangements—in which the Fed provided dollars ...

Earlier this week, the Federal Reserve's Board of Governors approved a rule implementing restrictions on its emergency lending powers that were mandated by Congress in the 2010 Dodd-Frank Act. On the whole, the rule is a sensible compromise which clarifies the procedures for Fed lending in a panic while responding to critics' concerns. Taking ...

The House voted Thursday to pay for planned highway construction by drawing on the Federal Reserve's capital. The idea of using Fed capital to pay for government spending, which comes up periodically, is a bad one, for several reasons. Although the Federal Reserve is not a private bank and can in fact operate with little or no capital, it's ...

Wednesday was something of a trifecta for Fed watchers: Chair Yellen, Board Vice-Chair Stanley Fischer, and Federal Reserve Bank of New York president Bill Dudley (who is also the vice chair of the Federal Open Market Committee) all made public appearances. Moreover, the comments by all three members of the Fed's leadership explicitly ...

It's good to be back. The past several months were a whirlwind as I prepared for the release of my memoir The Courage to Act and then traveled to promote it. I'm pleased to have the chance to sit down, switch gears, and return to writing, research, and blogging. I promise to post more frequently in coming months (which, admittedly, shouldn't ...

Full employment without inflation is in sight. The central bank did its job. What about everyone else? For the first time in nearly a decade, the Federal Reserve is considering raising its target interest rate, which would end a long period of near-zero rates. Like the cessation of large-scale asset purchases in October 2014, that action will ...

This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country's sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of the bargain? Specifically, is the euro zone's leadership delivering the broad-based economic ...

I must admit I was appalled to hear of Treasury Secretary Jack Lew's decision last week to demote Alexander Hamilton from his featured position on the ten dollar bill. My reaction has been widely shared, see for example here, here, here, here, and here.
Hamilton, the first Secretary of the Treasury, would qualify as among the greatest of ...

In this morning's Wall Street Journal, in an op-ed entitled "Misreading the Fed on a Rate Increase", Benn Steil argues that, for the purpose of predicting changes in the stance of monetary policy, Fed-watchers may be watching the wrong body. Instead of paying attention to the views of members of the Federal Open Market Committee (FOMC), he ...

Since the financial crisis the Federal Reserve has aggressively used monetary policy, including unconventional policies like quantitative easing, to promote job growth and keep inflation near the Fed's 2 percent target. Progress has been made, even if it has been slower than we would have liked. Unemployment, which peaked at 10 percent in 2009, ...

Earlier this week Senators Elizabeth Warren (D-Massachusetts) and David Vitter (R-Louisiana) introduced a bill they call the "Bailout Prevention Act of 2015." If enacted, the bill would further restrict the Federal Reserve's emergency lending powers in a financial crisis. That would be a mistake, one that would imprudently limit the Fed's ...

For the second year in a row, the first-quarter Gross Domestic Product figures were disappointing. The Wall Street Journal, in an editorial entitled "The Slow-Growth Fed," uses the opportunity to argue (again) for tighter monetary policy. The editorialists point out that the Federal Open Market Committee's projections of economic growth have ...

Stanford economist John Taylor's many contributions to monetary economics include his introduction of what has become known as the Taylor rule (as named by others, not by John). The Taylor rule is a simple equation—essentially, a rule of thumb—that is intended to describe the interest rate decisions of the Federal Reserve's Federal Open ...

I delivered the following remarks at the IMF's Rethinking Macro Policy III conference on April 15, 2015.
Thanks to the International Monetary Fund for inviting me to participate in this panel on "Monetary Policy in the Future." In the few minutes I have I'll offer some thoughts on the Fed's monetary policy framework, its tools for ...

In response to the Great Recession, the Federal Reserve has kept the short-term interest rate (the federal funds rate) near zero since December 2008 and taken other steps (like purchasing longer-term Treasury securities) to strengthen the recovery and avoid deflation of wages and prices. Although the recovery has not been as fast as hoped—in ...

In a few weeks, the International Monetary Fund and other international groups, such as the G20, will meet in Washington. When I attended such international meetings as Fed chairman, delegates discussed at length the issue of "global imbalances"—the fact that some countries had large trade surpluses (exports much greater than imports) and ...

My previous post discussed Larry Summers' secular stagnation hypothesis, the notion that monetary policy will be chronically unable to push interest rates low enough to achieve full employment. The only sure way to get closer to full employment, in this view, is through fiscal action.
A shortcoming of the secular stagnation hypothesis is that ...

Three of the most important objectives for economic policy are:

Achieving full employment
Keeping inflation low and stable
Maintaining financial stability ...

Interest rates around the world, both short-term and long-term, are exceptionally low these days. The U.S. government can borrow for ten years at a rate of about 1.9 percent, and for thirty years at about 2.5 percent. Rates in other industrial countries are even lower: For example, the yield on ten-year government bonds is now around 0.2 ...