The economy is complex and the range of factors contributing to uncertainty has risen. Rather than shy away from uncertainty, monetary policymakers need to embrace it by incorporating uncertainty into their policymaking framework. In practice, this means policymakers should: prepare for different economic futures by incorporating plausible alternative scenarios into their policy analysis; ensure policy is more nimble, robust, and systematic; and be more transparent, not less, but communicate more effectively.
The dollar’s dominance is a product of economic weight, financial development, political institutions, and geopolitical power acquired by the United States. The U.S. has benefited enormously from the currency’s international role. While the rest of the world now has potential alternatives, actual and potential alternatives are not the same, and monetary dominance is not an all-or-nothing proposition. Countries whose currencies are held and used internationally tend to possess institutions that restrain arbitrary government behavior. Although erosion of dollar dominance so far has been limited, threats are rising on the fiscal and monetary policy sides, on the regulatory front, from trade policy, and from the increased use of financial sanctions. A loss of confidence in the dollar before alternatives have had time to develop could produce a shortage of the financial assets needed to sustain international trade and investment. The best outcome would be an orderly transition in which the dollar remains an important pillar of the international monetary and financial system while credible alternatives develop. But there is no guarantee.
The Federal Reserve deliberates over 25-basis-point adjustments, yet in identified estimates a 50-basis-point move sustained for a year shifts inflation 0.09–0.49 percentage points, against a 0.27–0.37 real-time measurement floor. In 2021, the fastest money growth in 6 decades was dismissed as uninformative, months before inflation surged to a 4-decade peak. Both reflect an inverted allocation of attention. The paper’s remedy: hold the funds rate fixed while core PCE inflation is between 1.5
The labor force participation rate (LFPR) in Midwestern counties declined from 2019 to 2021, following national trends but less sharply. Early in the pandemic, declines in LFPR were associated with reduced participation among older workers, in metro areas, and in counties highly vulnerable to the pandemic, while higher participation among Whites, female, and educated workers was associated with partially offsetting these losses. Metro areas with higher LFPR among individuals with children under age 6 and greater in-migration experienced smaller initial declines. By 2020–2021, patterns shifted: younger workers, manufacturing-dependent employment, and human capital were linked to sharper drops. Meanwhile, mid-career workers, educated labor, individuals with young children, and in-migration in metro areas helped moderate declines, highlighting complex regional and demographic dynamics.
