Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates

Lucas and Luna explore why central banks are increasingly focused on bank funding costs as a leading indicator of financial stability and monetary policy transmission. Using the 2023 regional banking turmoil as a reference point, they examine how the spread between bank deposit rates and risk-free rates has narrowed, squeezing net interest margins and signaling potential credit tightening. The hosts discuss how the Federal Reserve now monitors the Bank Funding Cost Index from the Office of Financial Research, and how the European Central Bank tracks the pass-through of rate hikes to bank lending rates via the Bank Lending Survey. They also touch on the Bank of England's focus on the Sterling Overnight Index Average (SONIA) as a benchmark for funding costs. The episode concludes by considering whether central banks should incorporate funding stress indicators into their policy reaction functions. This episode is perfect for economics enthusiasts who want to understand the plumbing between central bank policy and bank behavior.

#CentralBanks #MonetaryPolicy #BankFundingCosts #FinancialStability #NetInterestMargin #FederalReserve #EuropeanCentralBank #BankOfEngland #OfficeOfFinancialResearch #SONIA #BankLendingSurvey #RegionalBankingCrisis #PolicyTransmission #FundingStressIndicator #InterestRateRisk #Economics #FexingoBusiness #BusinessPodcast

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Episode 118 of Monetary Policy Explained with Fexingo dives into the history and mechanics of inflation targeting, using the Reserve Bank of New Zealand's 1989 pioneering move as the anchor. Lucas and Luna explore why central banks picked the 2 percent target, how it was exported globally via the Maastricht Treaty and the Bank of England's 1992 adoption, and whether the framework is showing its age in the post-pandemic era. They discuss the role of the Taylor Rule in formalizing targeting, the flexibility of average inflation targeting (AIT) adopted by the Federal Reserve in 2020, and the practical challenges of setting a single number for a complex economy. With insights on the European Central Bank's definition of price stability and the Bank of Japan's struggle with deflation, this episode gives listeners a concrete understanding of how the inflation target shapes everything from mortgage rates to wage negotiations. If you've ever wondered why 2 percent is the magic number, this is your explainer.

#InflationTargeting #CentralBanks #MonetaryPolicy #ReserveBankOfNewZealand #FederalReserve #EuropeanCentralBank #BankOfJapan #TaylorRule #AverageInflationTargeting #MaastrichtTreaty #PriceStability #Deflation #TwoPercentTarget #Economics #FexingoBusiness #BusinessPodcast #LucasAndLuna #MonetaryPolicyExplained

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Central banks monitor labor market tightness via the ratio of job vacancies to unemployed workers. This episode dives into the specifics: the JOLTS data, the Beveridge curve, and the recent flattening. As of mid-2026, the U.S. vacancy-to-unemployment ratio has fallen from its 2022 peak of 2-to-1 to about 1.2-to-1, but remains above pre-pandemic levels. Lucas and Luna discuss why the Fed focuses on this metric, how it influences wage growth and inflation, and what the current flattening of the Beveridge curve implies for a soft landing. They also touch on the Bank of England's similar focus and the ECB's labor cost tracker.

#CentralBanks #LaborMarketTightness #BeveridgeCurve #JOLTS #FederalReserve #BankOfEngland #ECB #WageGrowth #Inflation #SoftLanding #VacancyToUnemploymentRatio #MonetaryPolicy #Economics #FexingoBusiness #BusinessPodcast #MonetaryPolicyExplained #LucasAndLuna #LaborEconomics

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Episode 116 of Monetary Policy Explained with Fexingo dives into the Liquidity Coverage Ratio — the post-2008 rule that forces banks to hold enough high-quality liquid assets to survive a 30-day stress scenario. Lucas and Luna walk through how the LCR reshaped bank balance sheets, why it matters for money markets, and what happens when central banks tighten policy in a world where banks must hoard Treasuries. They anchor the discussion to the 2023 banking turmoil and the 2026 rate environment, using data from the Fed's discount window and money market fund flows. A concrete look at how a regulatory ratio became a transmission mechanism for monetary policy.

#LiquidityCoverageRatio #LCR #CentralBanks #MonetaryPolicy #BankRegulation #BaselIII #HQLA #Treasuries #MoneyMarkets #DiscountWindow #BankingTurmoil #FederalReserve #LiquidityRisk #30DayStress #RepoMarket #FexingoBusiness #BusinessPodcast #Economics

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In this episode of Monetary Policy Explained, Lucas and Luna dig into the money supply curve: what it is, why central banks care about it, and how it shapes policy decisions. Using the real-world example of the ECB's October 2025 recalibration of its liquidity operations, they explain the difference between the vertical and upward-sloping views of the money supply curve and what recent balance-sheet runoff data tells us about which model central banks actually follow. Listeners will learn how the money supply curve helps predict whether a rate hike or quantitative tightening will have a bigger impact on inflation — and why the Fed and ECB are now paying closer attention to the slope of that curve as they navigate the post-pandemic liquidity landscape.

#MoneySupplyCurve #CentralBanks #ECB #FederalReserve #MonetaryPolicy #Liquidity #QuantitativeTightening #BalanceSheetRunoff #ReserveSupply #InterestRatePolicy #Economics #FexingoBusiness #BusinessPodcast #LucasAndLuna #MonetaryEconomics #CentralBankToolkit #MoneyMarkets #PolicyTransmission

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In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the concept of the neutral rate of interest—often called R-star. They explore why central banks are currently scrutinizing the neutral rate more than ever in July 2026, as the post-pandemic economy reshapes estimates. The hosts break down how the neutral rate is estimated using models from Laubach and Williams, and the Holston-Laubach-Williams approach, referencing specific data from the New York Fed and the San Francisco Fed. They discuss why the neutral rate has been declining since the 1980s, factors like aging demographics and productivity slowdowns, and whether the pandemic has pushed R-star higher. The episode also examines how central banks use the neutral rate as a benchmark for whether monetary policy is accommodative or restrictive. Lucas and Luna unpack the uncertainty around these estimates and why policymakers must navigate with humility. A must-listen for anyone wanting to understand the invisible compass guiding interest rate decisions.

#NeutralRate #RStar #CentralBanks #MonetaryPolicy #InterestRates #FederalReserve #LaubachWilliams #HolstonLaubachWilliams #NewYorkFed #SanFranciscoFed #Productivity #Demographics #Inflation #PostPandemic #Economics #FexingoBusiness #BusinessPodcast #MonetaryPolicyExplained

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In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dig into R-star — the neutral rate of interest — and why it matters more than ever in mid-2026. They use the recent Federal Reserve Summary of Economic Projections as a case study, showing how the median longer-run fed funds rate estimate has drifted upward since pre-pandemic levels. Lucas explains how neutral rate estimates inform rate decisions, why they are unobservable and model-dependent, and what a higher R-star implies for the economy. Luna pushes back on the reliability of these estimates, noting the wide confidence intervals. The conversation also touches on the debate between secular stagnation and persistent fiscal stimulus as drivers of R-star. A focused, accessible look at one of central banking's most important — and most elusive — concepts.

#RStar #NeutralRate #FederalReserve #MonetaryPolicy #CentralBanking #InterestRates #EconomicForecasting #FedSEP #LucasAndLuna #FexingoBusiness #BusinessPodcast #Economics #Macroeconomics #SecularStagnation #FiscalStimulus #LongRunRate #RateDecisions #Investing

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In this episode, Lucas and Luna explore how central banks use the Phillips curve to gauge the trade-off between inflation and unemployment. They break down why the curve has flattened over the past two decades, using the U.S. experience from the 1970s to today as a case study. The conversation digs into the breakdown of the traditional relationship after the 2008 financial crisis, the role of anchored inflation expectations, and how the Federal Reserve still relies on a modified version of the curve for policy decisions. Lucas explains the concept of the 'non-accelerating inflation rate of unemployment' (NAIRU) and why it's become harder to estimate. Luna challenges the reliability of the Phillips curve in a low-inflation world, citing data from the 2010s when unemployment fell well below NAIRU estimates without triggering inflation. The episode also touches on recent research about the curve's potential re-emergence after the pandemic, and what that means for central bank credibility. A clear, conversational look at one of macroeconomics' most debated relationships.

#PhillipsCurve #CentralBanks #Inflation #Unemployment #MonetaryPolicy #FederalReserve #NAIRU #Macroeconomics #LaborMarket #InflationExpectations #Economics #BusinessPodcast #FexingoBusiness #Fexingo #Podcast #InterestRates #WageGrowth #EconomicData

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Episode 111 of Monetary Policy Explained with Fexingo. Lucas and Luna dive into the world of overnight index swaps, or OIS. They explain how the OIS rate strips out credit risk, making it a pure measure of expected central bank policy rates. Using the June 2026 FOMC meeting as a concrete anchor, they walk through how traders and policymakers parse the OIS curve to gauge rate expectations, and why a 75-basis-point gap between the fed funds rate and OIS signaled market stress in March 2020. They also compare OIS to the Secured Overnight Financing Rate (SOFR) and show how swap spreads reveal hidden liquidity fears. No fluff, no intro — just a clear, specific breakdown of a tool that central bankers watch daily. Plus a brief, sincere moment about why Fexingo keeps these shows ad-free and listener-supported.

#OvernightIndexSwaps #CentralBanking #OIS #FedFundsRate #FOMC #SOFR #SwapSpreads #MonetaryPolicy #InterestRateExpectations #LiquidityRisk #MarketStress #Economics #Finance #FexingoBusiness #BusinessPodcast #PodcastEpisode #Episode111 #PolicyTools

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In this episode of Monetary Policy Explained, Lucas and Luna dive into an often-overlooked but powerful tool in the central bank toolkit: reserve requirements. While many assume reserve requirements are a relic of the past, they are quietly making a comeback in places like China and emerging markets. The hosts unpack how reserve requirements interact with interest on reserves and quantitative easing, using the People's Bank of China's recent adjustments as a concrete case study. They explain why the Federal Reserve and European Central Bank rarely use this tool today, yet why it remains a potent signal in economies with less developed financial systems. Lucas breaks down the mechanics of how changing reserve requirements affects the money multiplier, lending capacity, and short-term interest rates. The episode also explores how reserve requirements have evolved since the 2008 financial crisis and what their current usage tells us about the state of monetary policy globally. A must-listen for anyone trying to understand the full range of central bank tools beyond just interest rate decisions.

#ReserveRequirements #CentralBanks #MonetaryPolicy #PeopleBankOfChina #MoneyMultiplier #InterestOnReserves #QuantitativeEasing #FederalReserve #EuropeanCentralBank #EmergingMarkets #LendingCapacity #ChinaMonetaryPolicy #FexingoBusiness #BusinessPodcast #Economics #BankingSystem #FinancialStability #PolicyTools

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