Tags: federal reserve | monetary policy | Jeffrey Lacker | John Taylor

Fed's Lacker: Simple Monetary Policy Rules Are Best

Wednesday, 12 February 2014 08:58 AM

Using simple rules to dictate monetary policy is the best way to make central bank policy predictable and understandable, a top U.S. Federal Reserve official said on Tuesday, championing an approach not backed by the head of the Fed.

"Yes, I am a John Taylor fan," Richmond Fed President Jeffrey Lacker said at the Stanford Institute for Economic Policy Research, referring to the author of a well-known simple monetary policy tool, the Taylor rule.

Taylor, who teaches at Stanford, is a critic of current Fed policy, as is Lacker, who views its super-easy monetary policies as a threat to financial and price stability.

The Taylor rule, he and others have said, suggests the Fed should raise rates from their current near-zero level, rather than continue to promise they will stay low.

New Fed Chair Janet Yellen, who backs the Fed's pledge to keep rates low for the time being, once called the Taylor rule the mark of a "sensible" central bank.

But asked about the Taylor rule during her first public appearance since becoming head of the central bank, Yellen said that such an approach is useful during normal economic times, but is not useful when interest rates are already near zero.

Instead, she said, the central bank is relying on so-called forward guidance to give markets a read on future Fed policy.

Taylor himself was in Washington, testifying before Congress earlier in the day.


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Using simple rules to dictate monetary policy is the best way to make central bank policy predictable and understandable, a top U.S. Federal Reserve official said on Tuesday, championing an approach not backed by the head of the Fed.
federal reserve,monetary policy,Jeffrey Lacker,John Taylor
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2014-58-12
Wednesday, 12 February 2014 08:58 AM
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