William Dudley and Carolyn Wilkins on The Federal Reserve Monetary Policy Framework Review: A Comprehensive Approach to Improve Robustness

Video & Timestamps

On Thursday, May 1, William Dudley and Carolyn Wilkins joined Markus’ Academy for a conversation on “The Federal Reserve Monetary Policy Framework Review: A Comprehensive Approach to Improve Robustness.” Dudley is currently a Senior Advisor at the Griswold Center for Economic Policy Studies at Princeton University and previously served as the president and CEO of the Federal Reserve Bank of New York.  Wilkins is an external member of the Financial Policy Committee at the Bank of England and a visiting senior research scholar at the Griswold Center for Economic Policy Studies at Princeton University.

Watch the full presentation below. You can watch all Markus’ Academy webinars on the Markus’ Academy YouTube channel.

Timestamps:

[0:00] Markus’ introduction

[6:13] Shortcomings of the 2020 Framework

[30:10] 6 recommendations from the report

[52:18] Additional proposals

Summary

A few highlights from the discussion.

• A summary in three bullets
  • The Fed’s 2020 Framework was designed for a low inflation world, and it turned out to be poorly suited for the rapid demand recovery and supply shocks we saw after Covid
  • The new framework should be robust to risks on both sides of the dual mandate. The report has 6 main proposals, including ending flexible average inflation targeting, a more balanced approach to the dual mandate, and developing a comprehensive cost-benefit framework for QE/QT
  • Doing the review well is important for the credibility of the central bank, and credibility is important for independence. Not making any changes would entail not admitting that there were any shortcomings with the prior framework. It is good that central banks know there are lessons to learn
• Click here for the full summary