Leading Progressive Think Tank Builds On Earlier Case for More Expansionary Policy to Propose Expanded Monetary Policy Toolkit
New York, NY — Despite record corporate profits and high stock prices, most Americans have not shared in the post-recession recovery. A new Roosevelt Institute report, A New Direction for the Federal Reserve: Expanding the Monetary Policy Toolkit, outlines new tools the Federal Reserve can use to promote more robust and equitable growth.
This report builds on previous research showing the U.S. economy has not recovered from the Great Recession, with low labor force participation and weak productivity growth as evidence of an incomplete recovery. The macroeconomic policy tools employed for the last 30 years have been insufficient to restore full employment or robust economic growth.
In this report, Mike Konczal and J.W. Mason propose a new monetary policy toolkit to help restore prosperity for working Americans. They argue for expanding the scope and scale of interventions by the Federal Reserve to shape the character as well as level of economic activity in the U.S.
The report draws on recent scholarly debates and on policies employed by other central banks, including Japan, to restore healthy demand growth after deep downturns. Contrary to today’s conventional wisdom that the Fed has successfully achieved its macroeconomic goals, Konczal and Mason conclude there is much more the Fed can do to foster robust and equitable growth, and that a broader debate is needed about the appropriate institutions and targets for monetary policy. This report is especially timely as the Trump administration moves to install Jerome Powell, who represents the
reigning orthodoxy on monetary policy, as Federal Reserve Chairman.
Several of the policy recommendations explored in the report include:
- Setting long-term interest rates in addition to the overnight interest rate
- Explicitly support public borrowing, thus giving other parts of the federal government
more latitude to employ countercyclical fiscal policy
- Purchasing state and local debt to help combat counterproductive fiscal austerity at the
- Coordinating with the Treasury Department to ensure they are not operating at cross-
purposes in the bond market
“The Federal Reserve is a powerful institution that could plainly be doing more to raise wages and living standards, if it wished to,” said J.W. Mason, Fellow at the Roosevelt Institute and the report’s co-author. “What we face under current Fed policy is not a lack of good options, but rather a lack of political will and courage to recognize how poorly the economy is performing for most people and to respond on the scale required.”
“The recovery that took place after the financial crisis did not reach enough people, and as a result, millions of Americans feel left behind,” said Mike Konczal, Fellow at the Roosevelt Institute and the report’s other co-author. “Corporate tax cuts cannot and will not secure real recoveries from the next recession. And with Congress largely dysfunctional and dominated by special interests, a more visionary leadership at the Federal Reserve is one potential room for improved policymaking. While we are not optimistic that Chairman-designate Powell will adopt any of these policies, we still thought it was crucial to articulate specifically what the Fed could do better.”
In July, the Roosevelt Institute released another report on monetary policy entitled What Recovery? The Case for Continued Expansionary Policy at the Fed. This built on previous work by the Institute on the ways the federal government could change its policies to build a more inclusive economy.
About the Roosevelt Institute
Until economic and social rules work for all Americans, they’re not working. Inspired by the legacy of Franklin and Eleanor, the Roosevelt Institute reimagines the rules to create a nation where everyone enjoys a fair share of our collective prosperity. We are a 21st century think tank bringing together multiple generations of thinkers and leaders to help drive key economic and social debates and have local and national impact.