The second issue – and one that has probably not received the attention that it deserves – is how regulation should deal with financial innovation. Over many decades, our societies have benefited greatly from innovation in the financial system. Financial innovation has delivered lower cost and more flexible loans and better deposit products. It has provided new and more efficient ways of managing risk.
The FOMC statement notes that monetary policy will remain accommodative after liftoff in order to achieve “inflation moderately above 2 percent for some time so that inflation averages 2 percent over time.” 16 Even after economic conditions warrant liftoff, changes in the policy rate are likely to be only gradual to support the inflation makeup strategy and maximum employment.