Latest / Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates
Why Central Banks Are Obsessed with the Output Gap Now
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 potential GDP growth rate of roughly 1.5 percent against an actual growth of 2.2 percent, creating a positive gap of about 0.7 percentage points. They explain how that gap influences the Monetary…
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