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Bernanke Blog: What tools does the Fed have left? Part 3: Helicopter money

Brookings
Ben S. Bernanke | April 11, 2016 10:00am

In previous posts, I discussed tools that the Fed might use in response to a future slowdown in the U.S. economy. I argued that, even if the scope for conventional interest-rate cuts is limited by already-low rates, the Fed has additional policy tools available, ranging from forward guidance about future rate policies to additional quantitative easing to targeting longer-term rates. Still, so long as people have the option of holding currency, there are limits to how far the Fed or any central bank can depress interest rates. [1] Moreover, the benefits of low rates may erode over time, while the costs are likely to increase. Consequently, at some point monetary policy faces diminishing returns.