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Can a Rule-Based Approach to Monetary Policy Enhance Economic Growth and Stability?

Communication and Transparency in the Conduct of Systematic Monetary Policy

Speaker: Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia
Author: Joyce Chang, Managing Director and Global Head of Research, J.P. Morgan
May 8, 2014

Event Description

Philadelphia Fed president Charles Plosser joins Joyce Chang of J.P. Morgan to discuss his views on monetary policymaking. Plosser advocates for a systematic monetary policy in which discretion and judgment are replaced by a more rule-based approach of reacting in predictable ways to particular economic conditions. He also shares his thoughts on the state of the economic recovery and says that the U.S. economy appears poised to return to stronger growth rates following a weak first quarter.

The C. Peter McColough Series on International Economics is presented by the Corporate Program and the Maurice R. Greenberg Center for Geoeconomic Studies.

Event Highlights

Charles Plosser on the importance of communicating clearly what the Fed's response will be to different economic conditions:

"My view about systematic policy or reaction functions, if you will, is the more we can make it clear about how those decisions relate to the economy, not to the calendar, the better off we'll be. That doesn't mean there won't be uncertainty about the future path of policy, because we don't know what the future path of the economy is going to be very precisely, either. That means policy rates in the future will be uncertain, but they'll be uncertain mostly about uncertainty about the economy, not uncertainty about how the policy decision would be made."

Charles Plosser on the first quarter performance of the U.S. economy:

"If I look at the economy during the first quarter, I am—as the recent data have come in, I'm more and more convinced that a lot of the weakness that we saw in the first quarter was, in fact, weather-related. The numbers that have come in over the last few weeks and month seem to be indicating a pretty good bounce-back in both manufacturing outcomes. Consumer has done pretty well. And so I think that—so I'm actually encouraged by the recent data."

Charles Plosser on the effectiveness of monetary policy in providing economic stimulus:

"In the past, I have expressed concern that central banks around the world, not just in the United States, but around the world have taken some extraordinary actions that put us in places where we've never been before. Those efforts were courageous efforts in many cases to counteract a financial crisis in one case, and in the latter cases to sort of stimulate the economy by driving rates down and then long-term rates down and so forth. I do think we need to be careful in thinking about monetary policy as the solution to so many of our ills and that we need to be aware that these extraordinary actions may have unintended consequences that we have yet to be able to understand."

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