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By Jean Yung
WASHINGTON (MNI) - The conduct of monetary policy after lowering interest
rates to zero is a key challenge for the Federal Reserve as it prepares to
review its strategic framework this year, New York Fed President John Williams
"With estimates of the neutral real interest rate much lower than those
that prevailed 20 years ago, the (zero lower bound) is likely to be an even more
powerful force than was imagined in 1999," he said in remarks prepared for a
conference at the New York Fed.
Some of the tools the Fed used in the Great Recession trace their roots to
a key conference from 20 years ago, Williams noted. The research had important
practical lessons for the Fed, including the use of quantitative easing, and
that short-term rates should be cut aggressively when deflation or a severe
downturn threatens and kept "lower for longer" as the economy recovers.
The Fed is set to hold an academic conference reviewing its framework next
week in Chicago.
--MNI Washington Bureau; +1 202-371-2121; email: firstname.lastname@example.org