Can a central bank conduct a procyclical monetary policy?
The current case of the Federal Reserve is very interesting. While the US economy is giv ing signs of a slowdown: Financial markets do not believe that the Federal Reserve can continue to hike its interest rates; The Federal Reserve has said that it will continue to normalise its interest rates, i.e. to conduct a procyclical monetary policy. Can a central bank really conduct a procyclical monetary policy? That is difficult: Such a policy leads to a pointle ss manipulation of interest rates: they rise when the economy slow s down, and they must then rapidly be lowered ; As we saw in December 2018, a procyclical monetary policy leads to a marked deterioration in equity markets.