[Gianluca Benigno] A new Federal Reserve playbook?

Market expectations now point to a rate cut at the US Federal Reserve’s December meeting, probably an outcome that will come with dissents. At the same time, the announcement of the new Fed chair is going to be postponed to January and Polymarket probabilities for “no announcement by Dec. 31” have adjusted promptly, with Kevin Hassett leading among the likely contenders.

The incoming administration’s preference for lower rates is well known, but the stakes extend far beyond the near-term policy stance. The new leader could fundamentally reshape the Fed’s intellectual framework and write an entirely new playbook for monetary policy. The post-COVID-19 pandemic economy is governed by forces very different from those that defined the post-financial-crisis era, and the Fed’s most recent strategic review may have underestimated the scale of the challenges ahead.

The real question is whether the current framework is adequate for an economy driven by AI-enabled productivity, expansive fiscal policy, labor displacement, supply-chain fragmentation and a financial system where leverage, rather than bank lending, drives the cycle. The next Fed chair will inherit a world that the old playbook simply does not describe.

The pre-COVID-19 playbook

The decade between the global financial crisis and the COVID-19 pandemic was defined by a persistent effort to use monetary policy as the primary engine of inflation. The Fed cut interest rates to zero, deployed multiple rounds of quantitative easing, offered increasingly explicit forward guidance, and, just before the pandemic, adopted “make-up” strategies such as average inflation targeting. This was also the era of the secular-stagnation debate and the consensus around a structurally low neutral real interest rate, or r*.

Yet despite the extraordinary expansion of the policy toolkit, the Fed’s underlying macroecon