WASHINGTON (MNI) – The following is an excerpt from the minutes of
the Federal Open Market Committee meeting of July 31 to Aug. 1,
published Wednesday:

Simple Rules for Monetary Policy

A staff presentation summarized research on the efficacy of
alternative simple monetary policy rules in fostering the Federal
Reserves monetary policy objectives of maximum employment and price
stability. The presentation reviewed the characteristics of a variety of
rules and noted a number of reasons why current conditions might
warrant deviating from the prescriptions of simple rules designed for
more normal times. The presentation also discussed how simple rules
might be used as part of a comprehensive policy framework to provide
clear and transparent benchmarks for monetary policy decisionmaking and
the possibility that such rules could be helpful in communicating the
connection between policy choices and the Federal Open Market
Committee’s (FOMC) objectives.

Meeting participants expressed a range of views regarding the
appropriate role of policy rules in monetary policy decisionmaking. A
number of participants indicated that such rules have played a useful
role in in-forming the Committee’s monetary policy deliberations.
However, several participants pointed to specific considerations —
including the possible mismeasurement of unobservable variables, such as
potential output, and uncertainty about the appropriate economic models
to use in estimating the magnitude of those variables — that might
limit the usefulness of simple rules both internally and in public
communications. Several participants saw value in examining the
performance of rules across a range of economic models. Participants
discussed the case for making adjustments to the prescriptions of simple
policy rules in the current circumstances to take into account various
considerations such as the effective lower bound for the federal funds
rate, the effects of the Committee’s balance sheet policies, and
potential shifts in the dynamics of the economy. Some participants noted
that adjustment of standard policy rules for balance sheet policies
would tend to push up the federal funds rate prescription, while a
number of participants indicated that other factors related to current
circumstances may warrant maintaining an accommodative stance of policy
for longer than would be prescribed by standard rules. With regard to
the latter, some participants suggested that inertial policy rules —
that is, rules under which any movements in the stance of policy tend to
be fairly persistent — would be most appropriate in the current
context.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]