Central bankers aren't retreating from the fight against low inflation, although they're wary of launching a fresh assault on any daring new fronts.
Faced with disappointing growth after years of ultra-low interest rates, Federal Reserve Chair Janet Yellen and her peers who met at the weekend in Jackson Hole, Wyoming, re-affirmed their belief in the power of monetary policy to stop economies from slipping into deflation.
They were less keen on academic proposals that included the abolition of cash, raising their inflation targets, or keeping permanently large balance sheets.
Yellen, in her keynote address at the Kansas City Fed's annual mountain retreat, said that additional tools remain "subjects for research" and were not being actively considered.
Policy makers from Europe and Japan echoed her caution, while reaffirming that they stand ready to boost stimulus if fiscal action proves insufficient to spur growth and inflation.
Central bankers in advanced economies are struggling with low inflation, low productivity and weak levels of investment. For now, however, they're being cautious in what they're signaling about the future and are keeping more activist options at arm's length.
Policy makers such as San Francisco Fed President John Williams have proposed that central banks consider unorthodox measures, such as a higher inflation target or nominal gross domestic product targeting.
In stressing that monetary policy is adequate, Yellen and three other Fed officials at Jackson Hole urged structural reforms or a greater reliance on fiscal action.
"The toolkit is pretty strained," said former Fed governor Jeremy Stein, whose paper on the Fed's balance sheet as a financial-stability tool was the most discussed presentation of the three-day meeting.
Central bankers are "keen to reassure we have got more tools as opposed to saying, 'Guys, we are kind of running low on ammunition here and the fiscal side needs to step up'. "
The toolkit is pretty strained
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The symposium in Grand Teton National Park, held each year since 1978, attracts central bankers from around the world and notables such as former Fed Chairman Ben Bernanke, who has twice used the venue to signal unconventional policies.
This year's conference theme was designing resilient monetary policy frameworks; the topic has taken on greater urgency as the US expansion has moved into its eighth year and the federal funds rate remains in a range of 0.25 to 0.5 per cent.
While Yellen said that the rate could return to a long-term trend of 3 per cent, giving the Fed leeway to cut rates substantially if needed, it could be years before that target is reached.
Stein, now a Harvard economics professor, proposed that the Fed keep a permanently large balance sheet at around US$4.5 trillion as a way to bolster stability, while Carnegie Mellon University professor Marvin Goodfriend urged that negative interest rates be part of the central bank's toolkit.
Yellen didn't mention negative rates in calling for more study of ideas.
"I think it is too sanguine," said Adam Posen, a former Bank of England policy maker and president of the Peterson Institute for International Economics. "The fact that we are nowhere close to the 300 let alone 400 basis points you would normally need [to cut] is disturbing."
Posen said forward guidance - announcing policy plans to influence long-term interest rates - has largely proven ineffective and that buying different types of assets is restricted by US laws.
Bank of Japan Governor Haruhiko Kuroda and European Central Bank (ECB) executive board member Benoit Coeure both rejected the idea of a higher inflation target. Kuroda promised "ample space for additional easing" as needed, while Coeure said "we may need to dive deeper into our operational framework".
ECB policy makers have been wary because of frequent accusations they have overstepped their mandate.
During the meeting Yellen and three regional Fed bank presidents - Robert Kaplan of Dallas, Eric Rosengren of Boston and Loretta Mester of Cleveland - all urged fiscal policy makers to step up.
"Central bankers, we are increasingly talking about this, about the need for fiscal policy and other economic tools beyond monetary policy," Kaplan said, Friday, although he cautioned it could be "many years" for there to be action.
The need for novel approaches has been stirred by the persistence of low growth and low interest rates. Fed forecasts suggest a long-term federal funds rate of around 3 per cent, compared to an average of more than 7 per cent between 1965 and 2000, Yellen said.
"You can't expect us to do the whole job," Christopher Sims, Nobel Prize-winning economist from Princeton University, told Fed leaders. "So long as the legislature has no clue of its role in these problems, nothing is going to get done. Of course, convincing them that they have a role and there is something they should be doing, especially in the US, may be a major task."
There could be reasons for Fed policy makers' reluctance to move into uncharted waters as they face increased political scrutiny. That was highlighted by protesters with the Fed Up group, who demonstrated outside the Jackson Lake Lodge before the start of the meeting, holding signs reading "Higher Interest Rates = Fewer Jobs" and "Do Black Lives Matter to the Fed?"
So long as the legislature has no clue of its role in these problems, nothing is going to get done.
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Nine Fed bank presidents plus Governor Lael Brainard and Vice Chairman Stanley Fischer met during the meeting with community activists, who made their case for more diversity at the central bank and urged a focus on stronger labour markets to help lower rates of unemployment for black people and other minorities.
An adoption of a higher inflation target would almost certainly draw intense scrutiny from Republican lawmakers, already suspicious about the Fed's discretionary powers.
Even so, economists say deferring to fiscal authorities and hoping for the best with the current monetary policy toolbox is risky.
The current business cycle "is particularly dangerous," said Ethan Harris, head of global economics research at Bank of America. Economies are late in the cycle, yet central banks "are all close to zero, and they are starting to lose the expectations war" with inflation, Harris said.
Rather than consider radical changes, Harris said, maybe the best solution for the Fed at least is as simple as saying it intends to slightly overshoot its 2 per cent inflation target temporarily to get prices up "as much as possible before the next shock hits".