The conduct of monetary policy The Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies. Given what ails us, additional monetary policy measures are, at best, poor substitutes for more powerful pro-growth policies. The Fed can lose its hard-earned credibility – and monetary policy can lose its considerable sway – if its policies overpromise or underdeliver.
We should be leery of drawing inapt lessons from the crisis to the current policy conjuncture. Lender-of-last-resort authority cannot readily be converted into fighter-of-first resort power. Monetary policy can surely have great influence – most notably by establishing stable prices and appropriate financial conditions – on the real economy.