An upper limit on what monetary policy can achieve

One of the more interesting developments was the reticence from the Fed to move toward negative rates, something their counterparts in Europe and Japan are obviously more comfortable with. Yellen didn’t mention negative rates when discussing steps future policymakers may add to their toolkits, but it was telling that she did mention raising inflation objectives, and nominal GDP targeting. It was also instructive that she touched on fiscal policy, and the manner in which productivity can be enhanced, with a specific mention of how important the latter is to any potential improvement in living standards going forward. Yellen is not alone in drawing attention to the fact that the various agencies of government need to help fix the core issues that continue to plague the global economy. After all, whilst there is an ongoing debate as to whether or not there is a lower limit on where nominal rates can go in the developed world, markets are increasingly realising that there is an upper limit on just how much monetary policy can achieve.