The fiscal-monetary tango

The pandemic years called for policy reinforcement; the post-pandemic aftermath will call for policy prioritisation

The past two years have seen the largest coordinated global fiscal-monetary stimulus since World War II. The early and aggressive policy response has clearly mitigated the economic impact. The global output gap took 36 quarters to close after the 2008 crisis. Remarkably, this time it’s on course to close in just 14 quarters, albeit with large regional variations. But injecting stimulus is the easy part. The challenge is in calibrating the withdrawal. Car accidents rarely occur during acceleration; instead it’s the inability to brake in time.

The Fed is finding out the hard way. A gargantuan US stimulus has kept