Central banks around the world have faced years of extraordinary circumstances, including the COVID-related crash of the global economy, a spike in interest rates, and an ensuing runup in interest rates. William English, Eugene F. Williams, Jr. Professor of the Practice and a former economist at the Federal Reserve, discusses the lessons learned and what still stands in the way of a soft landing.
by William B. English
Yale Insights
Q: There’s tremendous attention on inflation these days. But the Federal Reserve and other central banks have been dealing with extraordinary circumstances for more than four years. Would you walk us through the challenges, the responses, and what we have learned, starting with the shutdown from the COVID pandemic?
While “unprecedented” is a term that can be overused, when the pandemic hit in 2020, it was an unprecedented shock. It had been 100 years since we’d had a global pandemic. And, of course, we now have a much bigger, much more complicated, much more integrated global economy, which was abruptly shut down.
It was very hard for policymakers to understand what was happening and to judge what was the right thing to do. Central banks did basically everything in their power to help get their economies going again. They have three monetary policy levers: interest rates, balance sheets, and guidance. They used them all to respond powerfully and quickly.