Aside from the papers presented, a major theme of the Jackson Hole Kansas City Fed central banker conference was that monetary policy cannot solve all economic problems.
Monetary policy can create and solve issues with inflation. Monetary policy can create and solve problems of credit. It can do its job by providing the liquidity needed for sustained growth. When working monetary policy is a lubricant to the growth engine not the engine itself. Forward guidance by definition has limits. It is supposed to reduce uncertainty and ambiguity but central banks cannot create growth through words. Monetary policy can be effective but less so as we rates reach the zero bound.
Monetary policy cannot solve trade wars. It cannot solve productivity issues. It cannot solve demographics or issues of regulation. It cannot close disparities disparity in wealth although it can increase the value of financial assets. In fact, taking monetary policy to extremes with negative interest rates will only lead to economic distortions that will have to be solved later. Without coordination, monetary policy in one country cannot solve global growth problems.
Monetary policy is political but the politics are different from fiscal policy where the legislative process creates distortions through power dynamics and is often slow moving. Monetary policy is a tool but the only tool. Central bankers have to tell all that they have limits. Politicians have to accept those limits and take on more policy responsibility.
This does not mean investors should forsake focusing on monetary policy, but there should be a greater awareness that the Fed is not a solution to a problem but a contributor to the problem. Further cuts may occur, but what ails growth is not high interest rates but more systemic problems. Be prepared for selling pressure on monetary easing as the meme of money impotence grows.
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