FIN Discussion 2

The future trajectory of monetary policy and the economy is hardly predictable because it is

often prone to a myriad of unforeseen factors. The effects of the pandemic have significantly

impacted the economy and further exacerbated the uncertainty about the future. However,

economists can make predictions about the future basing their predictions on current state and

assuming the best case scenarios in the future. Monetary policies in the short term will have to

focus on reducing unemployment. In the short term the central bank will have to sustain the

economy as it recovers from the crisis.

Consequently the effects of the 2020-2022 crisis have changed the way firms manage

risks. Secondly there has been an accelerated rate of digitization which is likely to affect fiscal

policies in the future. First we are experiencing a rapid growth in cashless transactions and

therefore and the central bank have to adopt policies which are more aligned with cashless

money transfers (Makhlouf 2020). It is also presumable that the digital payment growth could

dilute the central bank’s monopoly of money supply to further deliver price stability independent

from controls by the central bank.

Another aspect of the economy that is expected to change profoundly is attitude towards

public debt. Currently considering the state of the crisis, debt settlement has not been a priority

as it was prior to the pandemic (McGinty 2021). Such reservations could persist in post-crisis

period in which the monetary policy will value proper utilization of the borrowed money rather

than immediate debt settlement.

 With such changes in the economy the interest rates are at stake. It is possible that the

interest rate will increase in the next year (Derby 2021). The rates may be hit the 11% mark

which implies that we are headed to a recession.

References

Derby, M. (2021). Transcript: WSJ Interview with Atlanta Fed President Raphael Bostic

Makhlouf, G. (2020) COVID-19 and the future of monetary policy

McGinty, C. (2021). U.S. Debt Is at a Record, but the Risk Calculus Is Changing