Janus Face of Inflation Targeting_Walter_PrePrint

In the 1980s, central banks around the world stumbled upon a new method for conducting their monetary policy: instead of the heavy-handed, „hydraulic“ manipulation of monetary aggregates, they learned to „govern the future“ by managing the expectations of market actors directly. New and better indicators and forecasts would provide the basis for a new communicative coordination of markets expectations, permitting a more fine-grained and effective implementation of monetary policy, particular in controlling inflation. Focusing on the US Federal Reserve’s prototype development of inflation-targeting, this paper puts this storyline to the test. Against the recent trend in sociology to conceive of expectations and futurity as modes of coordination that thrive under conditions of (fundamental) uncertainty that defy rational calculation, I argue that futurity and the formation expectations inextricably depend on prior processes of formalization. Examining the transition to modern ‘inflation targeting’ monetary policy, I show how the effectiveness of coordination by expectation is achieved by extensive processes of proceduralization and standardization. While increasing the technical efficiency of fine-tuning expectations, these gains are only possible because of the procedural narrowing of the scope of communicative interaction, which may significantly affect the overall effectiveness of this mode of coordination. I conclude with a call to more closely examine how formal and informal modes of coordination are mutually interdependent – and how the nature of their entanglements affects their effectiveness.