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

In Episode 79 of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the natural rate of interest — also known as R-star — the theoretical neutral rate that neither stimulates nor restricts the economy. They unpack why central banks like the Fed, ECB, and Bank of Japan obsess over this elusive number, how it guides monetary policy decisions, and why it seems to be declining across dev...

In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna unpack the term premium—the extra yield investors demand for holding long-term bonds over rolling short-term ones. They explore why this obscure metric spiked in 2021, how it reflects market fears about fiscal sustainability and inflation, and why Fed Chair Powell watches it as a signal of regime change. The hosts use the 20...

Episode 77 of Monetary Policy Explained with Fexingo dives into tiered reserve systems — a policy tool central banks use to shield small banks from negative rates or manage liquidity gluts. Lucas and Luna walk through the 2020 Bank of Japan tiering, which exempted part of bank reserves from negative rates to protect regional lenders' margins. They compare it to the European Central Bank's 2019 tie...

Episode 76 of Monetary Policy Explained dives into the output gap — the difference between actual and potential GDP — and why it has become a central obsession for major central banks in 2026. Lucas and Luna break down how the Bank of England is using the output gap to guide interest rate decisions amid a tight labor market and sticky services inflation. They walk through the numbers: the UK's pot...

In Episode 75 of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the wage-price spiral — a concept central banks are monitoring closely in mid-2026. They use the current U.S. labor market as a case study, where the unemployment rate sits at 3.8% and average hourly earnings are growing at 4.2% year-over-year, while core PCE inflation hovers around 2.8%. Lucas explains the classic 1...

Lucas and Luna unpack the output gap—the difference between actual GDP and potential GDP—and why it matters for interest rate decisions. They look at the European Central Bank's 2024-2025 tightening cycle and how the output gap influenced policy even as inflation surged. Specific numbers: the ECB's estimated output gap swung from -2.3% in 2020 to +0.8% by mid-2024, then back negative. The hosts ex...

In this episode of Monetary Policy Explained, Lucas and Luna dive into a relatively new but powerful tool: yield curve control. They use the Bank of Japan's experience since 2016 as their case study, explaining how a central bank can target not just the short-term policy rate but specific longer-term yields. Lucas walks through the mechanics—how the BoJ commits to buying unlimited ten-year Japanes...

In this episode of Monetary Policy Explained, Lucas and Luna break down the Taylor Rule: the simple equation central bankers use to set interest rates based on inflation and the output gap. Using a concrete example from the Fed's mid-2026 decision-making, they show how the rule's guidance at a 2.1 percent core PCE inflation rate and a 0.8 percent output gap would point to a fed funds rate of rough...

Episode 71 dives into R-star — the neutral rate of interest that central banks can't see but constantly chase. Lucas and Luna unpack why the Federal Reserve, ECB, and Bank of Japan are obsessing over this unobservable number in mid-2026, how it shapes rate decisions without ever being announced, and why recent estimates have drifted higher. They walk through the Laubach-Williams model, John Willia...

In Episode 70 of Monetary Policy Explained with Fexingo, Lucas and Luna unpack the forgotten workhorse of central banking: reserve requirements. Once the go-to tool for controlling bank lending, reserve ratios have been sidelined in the US, UK, and Eurozone since the shift to an ample-reserves framework. But they're not dead. The hosts walk through the mechanics, the history of how reserve require...

In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the mechanics of currency intervention. Using the Japanese yen's slide against the dollar in 2024 as a concrete case, Lucas explains how the Bank of Japan spent over $60 billion in a single quarter selling dollar reserves to support the yen. They break down the difference between sterilized and unsterilized interve...

In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna break down inflation forecast targeting—the central bank strategy of using economic models and data to set interest rates based on where inflation is expected to be two years out. They walk through how the Reserve Bank of New Zealand pioneered this approach in 1990, and how the Bank of England adopted it in 1992. Lucas expla...

Episode 67 of Monetary Policy Explained with Fexingo dives into macroprudential policy — the toolkit central banks use to prevent asset bubbles without raising interest rates for the whole economy. Lucas and Luna focus on a concrete example: New Zealand's 2021 loan-to-value ratio restrictions and debt-to-income caps, which cooled an overheated housing market while the Reserve Bank kept its cash ra...

Episode 66 of Monetary Policy Explained with Fexingo dives into quantitative tightening (QT) — the opposite of QE. Lucas and Luna unpack how the Fed reduced its balance sheet from nearly $9 trillion to around $6.5 trillion by June 2026, focusing on the mechanics of letting bonds mature without reinvesting. They discuss why QT started in 2022, how it differs from rate hikes, and the liquidity crunc...

Episode 65 of Monetary Policy Explained with Fexingo drills into the quiet, practical reasons central banks from the Bahamas to Sweden to China are pushing out retail central bank digital currencies (CBDCs). Lucas and Luna unpack why it's not about replacing cash or surveilling citizens, but about defending monetary sovereignty as private crypto and Big Tech payments gain ground. They walk through...

In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dive into quantitative easing — the unconventional policy tool central banks deploy when traditional rate cuts hit zero. Using the Federal Reserve's response to the 2008 financial crisis as the central case, they walk through how QE works in practice: the mechanics of large-scale asset purchases, the impact on long-term inte...

Episode 63 of Monetary Policy Explained with Fexingo drills into triparty repo—the plumbing the Fed and other central banks use to inject or drain liquidity through the repurchase agreement market. Lucas and Luna break down how triparty repo differs from traditional bilateral repo, why it became a key tool during the 2023 regional banking stress, and how the Fed's Standing Repo Facility uses it to...

In this episode, Lucas and Luna dive into the central bank's oldest and most dramatic role: lender of last resort. Using the 2008 rescue of Bear Stearns and the 2023 Silicon Valley Bank failure as anchors, they explain how emergency lending differs from routine open market operations, why stigma still haunts the discount window, and how the Fed's 2023 Bank Term Funding Program broke the old rules....

Episode 61 of Monetary Policy Explained with Fexingo dives into the mechanics and trade-offs of exchange rate pegs. Lucas and Luna break down how the Hong Kong Monetary Authority has maintained a peg to the US dollar since 1983, why it requires holding over $400 billion in foreign reserves, and what happens when a peg comes under pressure—using the 1997 Asian Financial Crisis and the 2022 Turkish...

In this episode of Monetary Policy Explained, Lucas and Luna break down the Federal Reserve's Standing Repo Facility (SRF) and Standing Overnight Reverse Repo Facility (ON RRP). They explore how these tools create a 'floor system' for the fed funds rate, using specific examples from the repo market turmoil in September 2019 and the current post-2024 landscape. The hosts explain why the SRF exists...

In episode 59, Lucas and Luna explore helicopter money—the controversial idea of direct cash transfers from central banks to households. They drill into how it differs from quantitative easing, the legal and operational hurdles, and a specific case: Japan's 2024 cash handout pilot in Yamaguchi prefecture. They discuss Milton Friedman's original thought experiment, how modern central bankers like t...

Episode 58 of Monetary Policy Explained digs into negative interest rate policy (NIRP), a controversial tool used by the European Central Bank, the Bank of Japan, and others. Lucas and Luna walk through the mechanics: how charging banks on excess reserves is supposed to stimulate lending, why it creates strange incentives, and what the evidence says after nearly a decade of real-world testing. The...

Lucas and Luna break down the mechanics of reverse repurchase agreements — how central banks like the Fed use them to soak up excess cash from the financial system without selling bonds. With short-term interest rates at 5.25–5.5% in mid-2026 and reserve balances still elevated from quantitative easing, the reverse repo facility has become a quiet but powerful tool for draining bank reserves and k...

Episode 56 of Monetary Policy Explained with Fexingo dives into standing facilities—the lending and deposit windows central banks use to keep short-term interest rates within a target corridor. Lucas and Luna unpack how the European Central Bank's marginal lending facility and deposit facility create a rate ceiling and floor, using a real example from June 2026 when the ECB narrowed its corridor b...

In this episode, Lucas and Luna dive into the mechanics of open market operations—the most frequently used tool in central banking. They break down how the Federal Reserve buys and sells Treasury securities to influence the federal funds rate, using the specific example of the 2023 run-up in interest rates. Lucas explains how the Fed's $1.1 trillion repo facility works as a backstop, and Luna chal...