Could policymakers cope with another downturn?

Policymakers gathering in Jackson Hole last week highlighted that a fall in equilibrium real interest rates means that central banks may have little room to cut rates in the event of another recession. Unconventional policies such as QE and forward guidance may partly fill the gap, but they are not as powerful as interest rate cuts and probably have more undesirable side-effects. Meanwhile, the immediate outlook is for more policy easing in many advanced economies, but for another rate hike in the US, probably in December.