With the odds of recession in the US (and globally) having risen, policy makers and analysts have begun to focus more clearly on possible remedies. The worry is that the next recession will again force policy rates to the lower bound, without providing sufficient stimulus, that fiscal support will be late arriving and underpowered, and that the so-called unconventional monetary tools will not be able to fill the gap. The result will be an unnecessarily long recession, a slow recovery and another episode of chronic inflation misses to the downside, which could force inflation expectations finally to give way decisively.
This concern is probably the main motivation behind the Fed’s ongoing self-assessment. But what is on tap from that process seems limited. They have already ruled out raising the inflation target, although they seem more focused on actually delivering the one they already have. But so far, there has been no discussion of new tools to aid in the effort, beyond somewhat lame references to improving “communication.” When you are nearly tapped out, communication is not your main challenge, beyond implying a need to obfuscate, as we have seen.
A recent paper for the Blackrock Institute by a couple high-profile former central bankers (and co-authors) seeks to advance the discussion toward something that might move the dial more meaningfully, by proposing a new form of monetary and fiscal policy coordination. I discuss the proposal by Stanley Fischer, Phillipp Hildebrand et al in the attached report in some detail.