Navigating an Uncertain Global Economy in the Age of Financial Repression

Abstract

Since the 1980s, the chief engine of the gradual reduction in the general level of global interest rates has been the Federal Reserve System as it has pursued the “single mandate” of full employment. This policy fixation on targeting at least nominal employment had significant costs, including a steady level of underlying inflation that has slowly undermined consumer purchasing power (thus, today’s discussion of “income inequality”). The single mandate of full employment also facilitated periodic financial bubbles and crises resulting from the manic swings in Fed policy. This paper is based on remarks presented at the Central Banking Series sponsored by the Global Interdependence Center in Dublin, Ireland and Madrid, Spain, September 29 and October 3, 2016, respectively.

Keywords: Federal Reserve, financial repression, full employment, income inequality, single mandate, Humphrey-Hawkins, European Central Bank, Ford Moto Co, General Motors, Alfred Sloan, Henry Ford

JEL Classification: B2, B22, E44, E50