Summers on the power of monetary policy

 •  Filed under central banking

Lawrence Summers at the CFR event Assessing Global Economic and Political Risks in 2016 said:

Inflation expectations well below 2 percent. I mean, think about this: If you look at the industrialized world as a whole—the United States, Europe, Japan—markets are now predicting inflation over the next 10 years to be about 1 percent, and they’re predicting real interest rates to be zero. Well, they may not be exactly right, but that is a long-run pessimistic judgment. When you’re growing close to stall speed ... the risks of a crash are that much greater. And, of course, with interest rates already in the zero range, the capacity of monetary policy everywhere to respond if trouble comes is much attenuated.