EUR 132.56 For Business Accounts Only

How easy U.S. interest rate policy really is?

​The aftermath of the global financial crisis in 2008 forced the Federal Reserve to respond forcefully by cutting rates close to the so-called zero bound. Almost eight years after the end of the latest recession, U.S. monetary policy remains extremely loose and accommodative for the stage of the business cycle, at least at face value. Besides using traditional monetary policy tools, the central bank has experimented extensively with quantitative easing programs and has expanded its balance sheet substantially, most probably because policymakers felt that they needed to compensate for the fact that the natural rate oscillated around the zero bound. The asymmetric response to the global financial crisis has led many economists and analysts claim that the Federal Reserve is already behind the curve, as it risked a resurgence in inflation and should have raised key policy rates sooner. Since the FOMC embarked on its latest tightening cycle, few issues have been so widely debated as the sustainability of the current ultra accommodative monetary policy regime. To some the low yield regime induces excessive risk taking and could lead to financial asset bubbles, to others it just a reflection of the decline in potential growth and, thus, in the natural rate. It is thus not irrational to wonder, how straightforward the conduct of U.S. monetary policy is.