1/5 Good piece by @NickTimiraos.

The real question, though, is whether the Fed has the tools to promote higher inflation (thread).

Central bankers look to change long-running strategy to encourage lower rates, shift unemployment-inflation dynamic https://www.wsj.com/articles/fed-weighs-abandoning-pre-emptive-rate-moves-to-curb-inflation-11596360600">https://www.wsj.com/articles/...

2/5 To be clear, there is no alternative to a low-rate policy — that’s necessary. But is it sufficient? Low rates induce people to borrow more today instead of in the futures and thus shift growth from the future to the present.

3/5 But when rates are already very low AND expected to stay low, the power of that mechanism is severely impaired: What& #39;s the urgency of borrowing today when one can easily wait years? Traditional monetary policy is less effective in these circumstances.

4/5 The problem is that all the tools the Fed is considering and that can be used outside of crises (i.e., not 13.3) involve keeping rates low for long: forward guidance, QE, yield curve control, even negative rates -- they all do the same thing and suffer from the same problem.

5/5 In these circumstances, and unless different policies are implemented, it& #39;s very unlikely that inflation expectations or even inflation risk premiums, both of which were declining significantly even before #Covid_19, will come up in a meaningful way.