SORTING OUT MONETARY AND FISCAL POLICIES

Monetary and fiscal policies have both have gone off track. Excessively easy monetary policy, marked by a massive increase in the Federal Reserve's balance sheet and sustained negative real interest rates, has failed to stimulate faster economic growths but has distorted financial behavior and involves sizable risks. Fiscal policies have resulted in an unhealthy rise in government debt, and projections of dramatic further increases heap burdens on future generations and involve incalculable risks. Monetary and fiscal policies interact in undesirable ways. The Feďs expanded scope of monetary policy has blurred the boundaries with fiscal and credit policies, and the ever-growing government debt may eventually impinge on the Fed and its independence.