„Formalizing the future: How central banks set out to govern expectations but ended up (en-)trapped in indicators“

Abstract

Modern ‘inflation targeting’ monetary policy has been one of the prototypes of future-oriented modes of social coordination which in recent years have captured the sociological imagination. Modern central banking is commonly presented as achieving greater efficacy by directly managing economic expectations, in particular when contrasted with the previous heavy-handed, “hydraulic” transmission of policy objectives through systems of economic aggregates. Such empirical claims are mirrored in the theoretical distinction drawn by sociologists between the openness and efficacy of future-oriented coordination of expectations, and the more rigid coordination achieved through formal organizing and formalization.This paper uses the case of the US Federal Reserve’s (Fed) transition to inflation targeting in the 1980s to show how the precision and flexibility of social coordination through expectations in fact relies on extensive formalization and rigid proceduralization. I show that the tightly coupled control relation on which inflation targeting rests is not possible without the constitutive exclusion of other modes of representing and intervening the economy achieved by this formalization. However, the price for the robust and precise reactivity that modern central banking has constructed between key indicators of inflation expectations and the interest rate set by monetary policy, is a comprehensive procedural dis-embedding of monetary policy from the structure of economic activities whose path into the future it is meant to govern.The paper concludes that in order to better understand the conditions under which future-oriented modes of coordination fail or succeed, we need to study more closely the formalization of social relations on which they are founded.

The social sources of unelected power: how central banks became entrapped by infrastructural power and what this can tell us about how (not) to democratize them

“…From the term structure, essentially a global ("summarizing" other assets') yield curve(s), the central bank could thus "read off" not only the intertemporal structure of market expectations (regarding inflation) but also indications for how to configure its policy interventions to achieve particular effects (see, for example, Frankel and Lown, 1994;Zaloom, 2009;Christophers, 2017). The yield curve thus allowed for observing and evaluating the (scientific and technical) efficiency of monetary policy actions, constituting a condition of normalcy or "orderly conditions" required for efficient and effective agency to be conducted (Walter, 2019).…”

Central banking, shadow banking, and infrastructural power

“…Compared to fiscal policy, the link between monetary policy and macroeconomic outcomes is indirect and prone to disruption. Establishing and maintaining monetary governability therefore requires purposeful action -discursive and institutional -by central bankers (Braun, 2015, Dutta, 2018a, Krippner, 2011, Walter, 2019, Wansleben, 2018 Historically, administrative authority has often been geared towards imposing limits on private financial transactions for the purpose of enhancing the central bank control over financial conditions.…”