"The Janus Face of Inflation Targeting: How Governing Market Expectations of the Future Imprisons Monetary Policy in a Normalized Present."
Modern ‘inflation targeting’ is widely praised as having achieved a level of technical sophistication and efficacy unprecedented by previous modes of monetary policy. Building on the Rational Expectation Hypothesis, it is premised on the idea that it is possible to influence future outcomes (inflation) by shaping and conducting economic expectations in the present. Monetary authorities thus rely on the structure of market expectations as the medium that transmits their intended policy into the future, allowing them to focus on fine-tuning the ‘communicability’ (credibility and transparency) of their signals. However, even among practitioners the precise nature and functioning of this inter-temporal link remains contested, despite its seeming effectiveness and the lack of a practical alternative. In this chapter, I want to deploy some concepts and analytics from a recent literature in sociology and anthropology on the coordination of social futures to query the link between present and future on which inflation targeting is premised. My objective is to uncover the social and organizational preconditions of this form of economic temporality, in order to better understand what limitations they place on central banks’ ability to ‘govern the future’. To this end, I look at the so-called Volcker experiment in which the fundamental procedures for governing the future were developed – although their significance only became clear later. The gist of my argument is that the consensus view of ‘modern’ monetary policy insufficiently distinguishes between the present future (the future as it is imagined and projected from the present) and the future present (as it materializes at a later point in time). Inflation targeting rests on procedures which set up what, sociologically speaking, amounts to a tightly integrated and formalized ‘interaction order’ between central bank and financial markets. This interaction order enables a fine-tuning of expectational reactions by markets to policy signals – but at the price of decoupling monetary policy from the economic structures required for securing a congruence between present future and future present.