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Episode 864: The Central (Bankers') Question

Keith Romer

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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Bryant Urstadt is the editor of Planet Money, NPR's podcast about economics. Planet Money specializes in taking complicated subjects, finding the people at the center of them, and turning their stories into entertaining narratives. He is part of the team which won a Peabody for reporting on the fake bank accounts scandal at Wells Fargo.
Keith Romer has been a contributing reporter for Planet Money since 2015. He has reported stories on risk-pooling among poker players, whether it's legal to write a spin-off of the children's book Goodnight Moon and the time one man cornered the American market in onions. Sometimes on the show, he sings.