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Fed's Rosengren says legislated policy rule 'counterproductive'

  • Forcing the Fed to hew to a specific rule for setting monetary policy could lead to "large policy mistakes," Boston Fed President Eric Rosengren argued.
  • Such a rule has been proposed in legislation being considered by the U.S. Congress.
  • Rosengren acknowledged that it is essential for policymakers like himself to look to policy rules for guidance
Eric Rosengren
Sukree Sukplang | Reuters
Eric Rosengren

Forcing the Federal Reserve to hew to a specific rule for setting monetary policy, as proposed in legislation considered by the U.S. Congress, could lead to "large policy mistakes," a U.S. central banker argued on Friday.

Opening a two-day conference that features Stanford professor John Taylor, author of one of the best-known monetary policy rules, Boston Fed President Eric Rosengren acknowledged that it is essential for policymakers like himself to look to policy rules for guidance.

But to require adherence to a rigid rule, he said, would be counterproductive because rules do not necessarily capture all the policy options a central bank may need, nor do they necessarily adjust to changes in key economic estimates, like the level of unemployment that can be sustained without giving rise to unwanted inflationary pressures.

"From my perspective, policy effectiveness will be better served, instead, by a more robust formulation of monetary policy that draws on a diverse set of guidelines and benchmarks," Rosengren said.

He did not address the outlook for the economy or monetary policy in his prepared remarks.

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