Monetary Accommodation

Monetary accommodation is monetary policy that is…well…accommodative. Monetary policy (as a refresher) is the tinkering that a nation’s central bank does with interest rates and the money supply to affect inflation, price stability, and unemployment.

Accommodative monetary policy makes it easy to borrow. Which means low interest rates. Low interest rates encourage borrowing and investment, which theoretically spur employment and economic growth (but also inflation). Monetary accommodation is when the central bank keeps interest rates low....low, low, low, low.

In the U.S., the central bank—the Federal Reserve, i.e. “The Fed”—is the one that controls whether monetary policy is accommodative or not.

The enema of accommodative? Inflation. If it hits, we raise rates to cool things down.