How Monetary Policy Got Behind the Curve—and How to Get Back

With the inflation rate in the United States and many other countries on the rise for over a year and nearing double digits, the Hoover Institution hosted its 2022 conference on monetary policy. Policy makers, market participants, and academic researchers gathered to discuss the situation. Many agreed that low interest rates and high money growth were inappropriate given the high inflation rate and evidence that the United States has recovered from the deep recession induced by the pandemic and its policy response in 2020. The thoughtful papers and the thorough discussions in this volume of conference proceedings illustrate the debate about the reasons for this mismatch, as well as how to get back on track. They reflect a range of opinions and perspectives, including examination of the fiscal shock resulting from the COVID pandemic and the related borrowing and spending; emphasis on the value of adherence to rules versus discretion in setting Fed policy; lessons from history in the spikes in federal expenditures during times of war (including the pandemic) and in the timing of the Fed's use of its policy instruments; the role of central banks in the emerging inflation crisis; and strategies toward disinflation.

Michael D. Bordo is a visiting fellow at the Hoover Institution; and a Board of Governors Professor of Economics and director of the Center for Monetary and Financial History at Rutgers University.

John B. Taylor is a senior fellow at the Hoover Institution; and the Mary and Robert Raymond Professor of Economics and director of the Introductory Economics Center at Stanford University.

John H. Cochrane is a senior fellow at the Hoover Institution, a research associate of the National Bureau of Economic Research, and an adjunct scholar of the Cato Institute.

Preface: Michael D. Bordo, John H. Cochrane, and John B. Taylor 1. Introductory Remarks: Condoleezza Rice What Monetary Policy Rules and Strategies Say 2. Perspectives on US Monetary Policy: Richard H. Clarida 3. A Labor Market View on Inflation: Lawrence H. Summers 4. It’ s Time to Get Back to Rules-Based Monetary Policy: John B. Taylor Introductory Remarks: Tom Stephenson General Discussion: Robert Hall, Terry Anderson, Krishna Guha, Ellen Meade Fiscal Policy and Other Explanations 5. Inflation Past, Present, and Future: Fiscal Shocks, Fed Response, and Fiscal Limits: John H. Cochrane 6. How Monetary Policy Got So Far behind the Curve: The Role of Fiscal Policy: Tyler Goodspeed 7. Current Market Perspectives: Beth Hammack Introductory Remarks: Charles I. Plosser General Discussion: Krishna Guha, Mickey D. Levy, James Bullard, Richard H. Clarida, Markos Kounalakis The Fed’ s Delayed Exits from Monetary Ease 8. The Fed’ s Monetary Policy Exit Once Again behind the Curve: Michael D. Bordo and Mickey D. Levy Discussant Remarks: Jennifer Burns Introductory Remarks: Kevin Warsh General Discussion: Ricardo Reis, Richard H. Clarida, James Bullard Inflation Risks 9. The Burst of High Inflation in 2021– 22: How and Why Did We Get Here?: Ricardo Reis Discussant Remarks: Volker Wieland Introductory Remarks: Arvind Krishnamurthy General Discussion: Robert Hall, James Bullard, Patrick Kehoe, Marc Katz, Elena Pastorino World Wars: Fiscal-Monetary Consequences 10. Financing Big US Federal Expenditures Surges: COVID-19 and Earlier US Wars: George J. Hall and Thomas J. Sargent Discussant Remarks: Ellen R. McGrattan Introductory Remarks: John Lipsky General Discussion: James Bullard, Krishna Guha, Michael D. Bordo, William Nelson, Robert Hall, John H. Cochrane, Patrick Kehoe Toward a Monetary Policy Strategy 11. Is the Fed “ Behind the Curve” ? Two Interpretations: James Bullard 12. Strategy and Execution in US Monetary Policy 2021– 22: Randal Quarles 13. Reflections on Monetary Policy in 2021: Christopher J. Waller Introductory Remarks: Joshua Rauh General Discussion: David H. Papell, Mickey D. Levy, Tyler Goodspeed, John Gunn, John H. Cochrane, Nick Timiraos, Andrew Levin, William Nelson 14. Inflation Blues: The Fortieth-Anniversary Revival? Monika Piazzesi General Discussion: James Bullard, Krishna Guha, Arvind Krishnamurthy, Axel Merk, David H. Papell About the Contributors About the Hoover Institution’ s Working Group on Economic Policy Index