Market-Based Monetary Uncertainty provides daily indicators of the uncertainty about future short-term interest rates based on prices of money market derivatives

The Federal Reserve Board of Governors in Washington DC.

Submissions due by May 31, 2025, for the 2nd Annual Conference on Macro-Finance Research, to be held in San Francisco on October 10, 2025.

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economic Conference - The Federal Reserve Board of Governors in Washington DC.

Submissions due by May 31, 2025, for the 2nd Annual Conference on Macro-Finance Research, to be held in San Francisco on October 10, 2025.

Submissions due by May 31, 2025, for the 2nd Annual Conference on Macro-Finance Research, to be held in San Francisco on October 10, 2025.

The 2008 Global Financial Crisis and 2020 COVID-19 pandemic forced central banks to innovate and develop a multifaceted set of new weapons that have substantially expanded their authority and reach. This lecture draws lessons for monetary policy from the last two, tumultuous decades by applying the principles of Sun Tzu, a Chinese philosopher and military strategist from the 6th century BC. Tzu proposed several key principles for success—tenets that also apply to monetary policy today: (1) planning in advance for the next battle; (2) accepting and adapting to the inevitability of powerful, external shocks; (3) establishing a strong tactical position; (4) developing a variety of weapons that can be combined for different situations and maneuvers; (5) maintaining flexibility so that you can quickly modify your strategy; and (6) considering the longer-term costs when evaluating the tradeoffs of different approaches. While the optimal strategy in both war and monetary policy is more of an “art” than a science, these principles provide insights on how central banks should deploy interest rates, balance sheets, emergency support programs, forward guidance, and macroprudential tools when battling the next crisis—as well as to build more resilient economies during more peaceful periods.

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