Episode 864: The Central (Bankers') Question

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Planet Money #864: The Central (Bankers') Question The Central (Bankers') Question Listen · 22:09 22:09

It's confusing times to work at the Federal Reserve. The playbook for steering the economy doesn't work like it used to. So what's changed? We crash a party of central bankers to get some answers.

It used to be central bankers had a powerful lever to guide the pace of the economy: The ability to raise or lower interest rates. Increase interest rates a bit and it would push down investment, push down inflation, help prevent the economy from overheating and crashing. Or, in the other direction, they could lower interest rates and it would boost investments, boost spending, help to kickstart a slow economy. But lately, the lever hasn't been behaving like the textbooks say it should. The old relationship between interest rates and inflation isn't holding anymore. So, what to do?

This could be the most important puzzle in economics right now, because without that lever, central banks can't intervene in the economy to keep it moving at a healthy pace like they're supposed to. It might explain why much of the economy is humming along, but wages are just about stuck.

We go to the biggest gathering of central bankers — uninvited — to find out if the people in charge of steering the economy know what to do about this puzzle.

Music: "Sunburn" and "Club Soda."

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