An older society means more retired people, who tend to hold more assets, and monetary policy doesn't affect retired and working households the same way. To maintain its commitment to stable prices and maximum employment in an aging society, the Fed may need to rethink how it conducts monetary policy. In this article, Philadelphia Fed economist Makoto Nakajima examines how people in different stages of life differ in terms of income and wealth, how the young and the old could prefer different monetary policies, and how the aging of society potentially affects the conduct of monetary policy because of the differences between the young and the old.

This article appeared in the Fourth Quarter 2020 edition of Economic Insights. Download and read the full issue.