Has monetary policy lost its power?

No, says my latest Bloomberg column.  Here is one of the opening bits:

The most striking fact about the current situation is that not one of the world’s major central banks has announced that it would like to see a higher rate of price inflation. Have you heard support for a 3% inflation rate lately from the heads of the European Central Bank, the Bank of Japan or the U.S. Federal Reserve? It is therefore no surprise that central banks don’t seem to matter much.

In essence, central banks would like to make marginal contributions to stimulating the economy, without incurring the political wrath from a higher rate of price increase. The powers they have lost are political, not economic.

On these and related questions, I am grateful to the writings of Scott Sumner over the years.  And in sum:

In fact, when it comes to macroeconomics, the current malaise is not just political but also cultural: It is a paralysis of the spirit to achieve and excel. Conventional economic theory has not been proved wrong, at least not yet. There is just a fading willingness to apply it.


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