“The high cost of data dependency”

Since the Great Financial Crisis, central bankers have increasingly emphasized their “data-dependent” approach to monetary policy. Janet Yellen often signaled that decisions about interest rate hikes would rely on economic indicators such as inflation, employment, and GDP growth. Fed Chair Jerome Powell has repeatedly used “data dependent” to describe policy decisions in this period of heightened inflation and economic turbulence. Mario Draghi too adopted similar language when navigating the aftermath of the European debt crisis and deciding on asset purchase programs and interest rates; President Lagarde followed on his path. As a matter of fact, after the COVID-19 pandemic, central banks faced unprecedented uncertainty and guided markets on their actions amid volatile data on inflation and economic recovery…