Lael Brainard: Monetary policy strategies and tools when inflation and interest rates are low

Speech by Ms Lael Brainard, Member of the Board of Governors of the Federal Reserve System, at the 2020 US Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York City, 21 February 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Comments on Monetary Policy in the Next Recession?, a report by Stephen Cecchetti, Michael Feroli, Anil Kashyap, Catherine Mann, and Kim Schoenholtz

I want to thank Anil Kashyap and the Initiative on Global Markets for inviting me, along with my colleague Raphael Bostic, to comment on this year's U.S. Monetary Policy Forum report by a distinguished set of authors. This year's report addresses the challenges that monetary policy is likely to encounter in the next downturn. This topic is under active review by the Federal Reserve and our peers in many other economies.

Looking Back

The report explores the important question of whether the new monetary policy tools are likely to be sufficiently powerful in the next downturn. The report assesses how unconventional tools-including forward guidance, balance sheet policies, negative nominal interest rates, yield curve control, and exchange rate policies-have performed over the past few decades. It employs a novel approach by examining the effect on an index of financial conditions the authors construct. This approach adds to what we have learned from earlier papers that have examined the performance of unconventional policy tools with respect to individual components of financial conditions-most notably, long-term sovereign yields, but also mortgage rates, equities, exchange rates, and corporate debt spreads.