A Wall Street Journal piece on making Federal Reserve monetary policy on a simple rule

The requirement would be based on the Taylor Rule

  • In 1993 economist John Taylor inferred a formula for how Paul Volcker and Alan Greenspan set interest rates from 1987 to 1992
  • Its components include the gap between inflation and its target, between economic output and its target, and the "neutral" real (inflation-adjusted) interest rate, which keeps the economy at full employment and inflation stable
  • Taylor identified an empirical relationship, but this was not the same as a predictive law like the law of diminishing returns. There was no guarantee the formula would work in different conditions.

Opponents of introducing this rules-based policy say no rule can anticipate all the shocks and economic changes the Fed is likely to encounter

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Article is here for more

Its ungated.

If you'd like some debate while markets slow for the US holiday ... lets hear from you in the comments