speeches · November 3, 1999

Speech

William Poole · President

Communicating the Stance of Monetary Policy UniversityofMissouri–Columbia Columbia,Missouri November4,1999 Ihave spent most of my professional life congressionaltestimony.Athirdchannelisthe studyingmonetarypolicy—tryingtounder- informationtheFederalOpenMarketCommittee standhowpolicyactionsaffecttheeconomy (FOMC)—theFed’schiefpolicybody—releases and how policy might be improved. Those inrevealingitsdecisionsanddeliberations.Iwill were my concerns as an academic, and they concludewithsomesuggestionsforimproving remain my concerns as a policymaker. communication. SinceIarrivedattheFed,however,Ihave Beforeproceeding,Iwanttothankmycol- cometoappreciateanotherdimensionofthe leagueattheSt.LouisFed,BillGavin,forhis policyproblem—howtocommunicatethestance extensiveworkonthisspeech.However,Iretain ofpolicytothemarketsandthegeneralpublic. fullresponsibilityforerrors.Theviewsexpressed Asanacademic—alongwithalmostallother aremineanddonotnecessarilyreflectofficial academics,Ibelieve—Itookcommunication positionsoftheFederalReserveSystem. issuesforgranted.Itseemedtomethat,ifthe centralbankpursuedawell-formulatedpolicy, thenthatpolicywouldbeeasilyunderstoodby WHY COMMUNICATION MATTERS themarkets. TheFederalReserveimplementsitsmone- Thematterisnotsosimple.Trytoexplainto tarypolicybysettinganintendedinterestrate someonehowtorideabicycle.Indeed,almost forfederalfunds.Federalfundsaresimplyreserve anyonecanlearntorideabikebyjustdoingit, balancesownedbybanksondepositatFederal butalmostnoonecanlearnthatbyreadingabook. ReserveBanks.Abankrequiring,ordesiring, Iwon’tpushthebicycleanalogyfurther,because largerreservebalancesmayborrowthemfrom Icertainlydon’twanttoclaimthatmonetary anotherbankwithsurplusbalances;theinterest policymakersshouldn’treadbooks!Butactual rateontheseloansiscalledthe“federalfunds experience—justdoingit,orwatchingupclose rate.”TheOpenMarketDeskattheFederal thosewhoare—isveryvaluableaswell.Deepen- ReserveBankofNewYorkintervenesinthe ingunderstandingofcommunicationissuesis markettokeepthefederalfundsratenearthe highonmyagenda,butinthisspeechmyaimis intendedratedeterminedbytheFOMCatits toreviewthecommunicationchannelsthatare mostrecentmeeting.Mostactivityinthefederal importanttoday.I’llbeginwithabriefdiscussion fundsmarketisforone-dayloans—“overnight” ofwhycommunicationissoimportantforasuc- loans,inmarketparlance.So,Fedpolicydecisions cessfulmonetarypolicy. determinetheinterestrateonovernightloans ThenIwilltalkaboutseveralchannels betweenbanks.Howcansuchdecisionsaffect throughwhichtheFedcommunicatesmonetary theinterestratesimportanttobusinessesand policyinformationtothepublic.Oneofthese households? channels—themovementofpeopleinandoutof Themortgageinterestrate,forexample,is theFederalReserveSystem—reallygoesboth extremelyimportanttohomeowners,prospective ways.Anotherbroadchannelisspeechesand homeowners,andhomebuilders.Wheredoesthe 1 MONETARYPOLICYANDINFLATION rateona25-year,fixed-ratemortgagecomefrom? temporary.Inthiscase,longer-termratesmove Well,theFedsetstheone-dayrate.The1-week little,ifatall.TheFeddiscoversthatithasnot ratedependsonmarketexpectationsaboutwhat providedenoughstimulustotheeconomy,and theFedwilldowiththeone-dayrateoverthe inafewmonthscutsthefederalfundsrateagain. nextsevendays.Theone-yearratedependson Eventually,longer-terminterestratesdofall,but themarket’sexpectationsforthenext521-week valuablemonthshavebeenlost.Inbothexamples, rates.The25-yearmortgageratedependsonthe marketexpectationsoffutureFedpolicyclearly market’sexpectationsaboutthenext251-year playacentralroleinthetransmissionofmonetary rates.Wheredoalltheseexpectationscomefrom? policyactionstotheeconomy.Itmightseema Theycomefromthemarket’sunderstandingof simplematterfortheFedtomakeclearwhatit whattheFedwilldowiththe1-dayrateonthe intendstodo,buttheproblemisnotatallsimple. averageoverthenext25years. ThefactisthatFedadjustmentsofthefederal Thisbasicpicture,ofcourse,isgreatlycom- fundsrateinthefuturedependprimarilyon plicatedbychangesintherealrateofreturnon futureeventsthatcannotbeforecastaccurately. risklessinvestments,riskandliquiditydifferen- TheFedcannotexplaintothemarketwhatthe tials,andotherfactors,butthebasicpointIwant pathforthefederalfundsratewillbebecause toemphasizeisthatlonger-terminterestrates theFeditselfdoesnotknow. dependcriticallyonmarketexpectationsabout Thispointiscritical:TheFeditselfdoesnot whattheFedwilldo,orwillhavetodo,inthe knowwhatthefuturepathofthefederalfunds future.AndwhattheFeddoesdependscritically onwhatithastodotoachieveitsgoaloflowand ratewillbe.WhattheFedneedstocommunicate stableinflation.AlthoughtheFedhassubstantial tothemarketsishowitwilladjustthefundsrate controloverthefederalfundsrateintheshort inresponsetoevents,oreconomicdevelopments, run,ithasnolasting,orlong-run,effectonthe thatcannotbeforecast.Thiscommunicationstask averagelevelofratesifitissuccessfulinachieving isenormouslydifficultbecausesomanydifferent pricestability.Overthelongrun,ratesdepend considerationshavetobefoldedintopolicydeci- ontheeconomicfundamentalsofproductivity sions.Atanygiventime,theremightbesiximpor- growth,savingandsoforth. tantconsiderationsthatpointtowardpolicyeasing Acoupleofexampleswillmakeclearhow andfourthatpointtowardpolicytightening. importantFedcommunicationis.Suppose,purely TheFedmustweighcompetingconsiderations, hypothetically,theFedbelievesthateconomic takeaccountofdatainaccuraciesandfigureout conditionsaresofteningandthatlowerinterest whethermarketshavealreadyrespondedtothis ratesareappropriatetotheneedsoftheeconomy. flowofinformation,makingaFedresponse Believingthatonlymodeststimulusisrequired, unnecessary. theFedlowersthefederalfundsrateby1/4ofa Insum,Fedcommunicationiscriticaltothe percentagepoint.Themarket,however,might effectivenessofmonetarypolicy,butdevilishly believethattheratecutisthefirstofseveralcuts. difficult,becausepolicyitselfisdifficultand Basedonthisbelief,themarketbidslonger-term becausesomuchdependsonanunforecastable rates,includingthemortgagerate,downby,say, future.TheFedmustcommunicateinanenviron- 1/2ofapercentagepoint.TheFedfindsthatthe mentinwhichmanykeyeconomicissuesare stimulustoeconomicactivity,includinghome unresolved,inwhichcompetingtheoriesviefor building,isgreaterthanintended,andinafew monthstheFedreversestheoriginalratecut. attentionandinwhichlisteners’understanding Longer-terminterestratesrise,andthemarketis rangeswidely.So,howdoestheFedcommuni- thoroughlyconfusedabouttheFed’sintentions. cate?Clearly,thiswholeareaisfluid—weare Again,purelyhypothetically,let’ssaythe constantlysearchingforwaystoimprovewhat marketinterpretstheFed’sinitialratecutas wedo.ButIcanprovideaprogressreport. 2 CommunicatingtheStanceofMonetaryPolicy INTERACTION BETWEEN PEOPLE SPEECHES AND CONGRESSIONAL INSIDE AND OUTSIDE THE FED TESTIMONY Animportantsourceofinformationabout Thepublicandmarketsalsolearnabouthow theFed’sinnerworkingscomesfromeconomists theFedworks(andhowtheFedthinkstheworld andpolicymakerswholeavetheFedforthe works)throughthespeechesofReserveBank marketplace.Thesepeopleareingreatdemand presidentsandgovernorsoftheFederalReserve becausetheyhavespecialknowledgeabouthow System—thatis,thosewhoattendFOMCmeet- theFedworks.Manyoftheeconomistsseenon ings.Thesespeechesgiveanindicationofthe businessnewsshowsorquotedinthefinancial rangeofviewsamongFOMCmembers,their pressareformerFedeconomists.FederalReserve beliefsaboutthestageofthebusinesscycleand governorsandReserveBankpresidentsattimes theirperceptionsofthebalanceofrisksbetween leavetheFedtogotoexecutivepositionsinthe inflationandunemployment. financialservicesindustry.Thereareshiftsinthe Themostsought-afterspeakeristheChairman oppositedirectionaswell.TheFederalReserve oftheFederalReserveSystem.Atpresent,the Systembenefitsfromthepracticalbusinessexpe- ChairmanisAlanGreenspan,whotookofficein rienceofthebankersandbusinesspeoplewho 1987.TheChairmanistheonepersonwithinthe cometoworkaspolicymakers. FederalReservewhodoesnotprefacehisremarks Thereisalsoanimportantinterchange betweentheacademiccommunityandtheFederal withadisclaimersayingthathisviews“arenot Reserve.Manyofthegovernorsandsomepresi- necessarilyofficialviewsoftheFederalReserve dentscomefromtheacademiccommunitywhere System.”Heoftenusescongressionalhearingsto theyhavedevelopedcareersdoingresearchon explainhisviewofthestateoftheeconomyand monetarypolicyissues.Buttheinformation toreviewrecentpolicyactions.Writtentestimony exchangegoesfarbeyondjustanexchangeof iscarefullyprepared,andmembersofCongress personnel.Academiceconomistsareregularly haveextensiveopportunitytopursueissuesthat invitedtopresenttheirideasinseminarsandFed- concernthemduringtheQ&Apartofhearings. sponsoredconferences.Thesenationalexperts Twiceeveryyearforsomeyears,theFed onmonetarytheoryandmonetarypolicyoften Chairmanhasreportedtheeconomicforecastsof spendtimeattheBoardofGovernorsandFederal membersoftheFOMCtoCongress.Theseforecasts ReserveBanksasvisitingscholars.Fedeconomists revealtheoutlookofthemembersforgrowthin routinelycontributepapersatconferencesspon- realGDP,nominalGDP,andtheCPImeasured soredbyacademicandprivateresearchinstitutes. fromthefourthquarterofoneyeartothefourth Happily,thisextensiveinteractionbetween quarterofthenext.Theforecastalsoincludes academicandFedeconomistshasgenerated theoutlookfortheaverageunemploymentrate somethingofaconsensusonmonetarypolicy inthefourthquarterofthecalendaryear.The goals:Whilemonetarypolicymayhaveavariety Chairmanreportsthefullrangeofforecastsof ofobjectives,theoverridinglong-runobjective FOMCmembers,fromthelowesttothehighest shouldbepricestability.Thereisnowsubstantial foreachitem.Healsoreportsanarrowerrange agreementthattheFedcanachieveitslong-run calledthe“centraltendency.”Togetthisnarrower policygoalbyusingthefederalfundsrateasthe day-to-dayguideforopenmarketoperations. range,theBoardofGovernorsstaffdiscardsthe InteractionwithFedinsidershelpsacademic extremevalues.Theseforecastsareparticularly scholarsfocusonpracticalissuesandhelpsFed interestingbecausemonetarypolicymakersmake economistsunderstandandapplynewtheories themtakingintoaccountthepolicyadoptedby developedbyleadingscholars. theFOMC. 3 MONETARYPOLICYANDINFLATION POLICY ACTIONS TAKEN AT eveninadvertently,themarkets.Thenavoteis takenonthekeydecisionvariable—thelevelof FOMC MEETINGS thefederalfundsrate. ThefocalpointofeveryFOMCmeetingis Importantinformationthatarrivesbetween thefinalvoteatthemeeting’sendontheintended meetingsmayormaynotleadtoachangeinthe federalfundsrate.Toreachthisdecision,com- policysetting.Inrecentyears,theFedhasrarely mitteemembershearstaffbriefings,examinedata changeditspolicybetweenFOMCmeetings. thathavearrivedsincethelastmeeting,anddelib- However,asinformationarrivesdaybyday,secu- erateabouttheappropriatestanceofmonetary rities’pricesmayadjustbasedonthemarket’s policy.Deliberationsincludediscussionofthe viewofthelikelihoodofFOMCactionatitsnext risksontheupsideanddownside.Beforeevery meeting.IfthemarketsunderstandtheFed’s FOMCmeeting,BoardstaffandReserveBank objectivesandoperations,thentheyshouldbe staffbriefthegovernorsandBankpresidentson wellpreparedforthepolicyaction,ifoneoccurs. economicnewssincethelastmeeting.Thesebrief- Howcanthemarketssuccessfullypredict ingsdifferamongReserveBanks,dependingon whattheFOMCwilldoatitsnextmeeting?Part thetraditionsofeachbankandthebackground ofthestory,ofcourse,isthatmarketparticipants ofeachbankpresident.However,everybriefing carefullyfollowspeechesbyFOMCmembers, includesadiscussionofwhattheincoming especiallytheChairman’s.Butamajorpartof newsimpliesforthestanceofmonetarypolicy. thestory,andapartincompletelyappreciatedby TheBoardstaffpreparesandcirculatesregular mostobservers,isthatthemarketsalreadyhave briefingsand,beforeeachFOMCmeeting,the adeepunderstandingofmonetarypolicy.Much GreenbookandtheBluebook.TheGreenbookis ofthetime,theFedandthemarketsareinclose theforecastoftheeconomyoverthenextyear agreementaboutwhatpolicyactionswillbe ortwo,andtheBluebookisasummaryofopen requiredtokeeptheeconomyonasteadycourse marketoperationsanddevelopmentsinfinancial inthefaceofnewinformation. marketsaswellasadiscussionofpolicyoptions. Inanearlierspeech,Idefinedtheideaof FOMCmeetingsusuallybeginat9:00AM policy“perfection”asthesituationinwhich onaTuesdaymorningwithpresentationstothe thereisnomarketreactiontoaFedpolicyaction Committeefromtheinternationalandopenmarket becausethemovewasperfectlyanticipated.Of desksoftheNewYorkFed.Afteraperiodofdis- course,thisidealisneverachievedbecauseinfor- cussion,Boardstaffpresentsthekeyelementsin mationinsideandoutsidetheFedisnotperfectly thestaffforecastcontainedintheGreenbook. synchronizedandbecausepeopledisagreeabout Committeemembersthengivetheirviewsabout howtheworldworks.SinceFebruary1994,the thestateoftheeconomyandwhethertheythink FOMChasannouncedchangesinthefedfunds theincomingnewshasshiftedtheiropinions abouttheappropriatestanceofmonetarypolicy. targetonthesamedaythatthedecisionsaremade. Afterthisfirstroundofdiscussion,thestaffmem- Sixorsevenweekslater,afewdaysafterthenext berswhopreparedtheBluebookgiveabriefing scheduledmeeting,theFOMCreleasesthemin- onfinancialmarkets,themonetaryaggregates, utesofthepreviousmeeting.Sothereisanaverage andpolicyoptions.Thereisasecondgo-around lagofseveralweeksbetweentheendofthemeet- inwhichtheCommitteemembersstatetheir ingandthereleaseoftheminutes.Theseminutes viewsaboutthestanceofmonetarypolicy.The disclosethetopicsdiscussed,summarizeviews Committeeoftendiscussesatlengthexactlywhat aboutthestateoftheeconomy,anddescribethe tosaypubliclyabouttheprobable,orpossible, reasonsforanydissentingvotes.Theminutesare futuredirectionofpolicy.Theaimisalwaysto thoroughandanimportantvehicleforkeeping figureoutthemostconstructivethingtosayto themarketsandthegeneralpublicwell-informed makepolicymoreeffectiveandnottoconfuse, aboutFedthinking. 4 CommunicatingtheStanceofMonetaryPolicy OTHER COMMUNICATION Iknowwouldhavepredictedthedegreetowhich inflationratesaroundtheworldwouldhavecon- CHANNELS vergedtosuchalowlevel.Thereisnowconsider- TheFedhasmanyothercommunications ableagreementthatpricestabilityshouldbethe channels,whichIwanttomentionjustbriefly. primaryobjectiveofmonetarypolicy. EachFedDistrictBankhasninedirectors,and TheFed’slegislativemandateincludesmul- eachbranchhassevendirectors.Thedirectors tipleobjectives:pricestability,andfullemploy- aredrawnfromtheprivatesectorandmeet ment—oritsequivalent,maximumsustainable monthlyattheirBanksandbranches.Inthe economicgrowth.Atonetime,economists EighthFederalReserveDistrict,forexample,we believedthattherewasatradeoffbetweenthe haveatotalof30directors.Theygainfromtheir trendrateofinflationandtheunemployment directors’meetingsandothercontactswiththe rate.Theexperienceofthe1970staughtusthat Fedabodyofknowledgethatgrowswiththeir higherinflationcreatesamuchlessstableecon- service,andtheyserveasambassadors,spread- omy.Ratherthanreducingtheaveragelevelof ingthisknowledgethroughouttheircommunities. unemployment,ifanything,higherinflationleads EachFedBankhasnumerousadvisoryboards tohigherunemploymentandlessrealgrowth. thatmeetfromtimetotimewiththeBankpresi- Althoughconsensushasbeengrowingthat dentandotheremployees.Wehaveprogramsin pricestabilityshouldbetheprimarygoalof whichwetourourdistricts,talkingwithbankers, monetarypolicy,theobjectiveremainsrather businessandcommunityleaders,academics,and vaguelydefined.Weinheritedthisvagueness others.Manyofushavefairlyfrequentcontacts fromatimewhentherewasnoclearconsensus withmembersofthepress. aboutthepolicyobjectiveandwhenpeople Ihavenottriedtocountallmycontactsover believedthattheinflation-outputtradeoffwas thecourseofayear,butIknowthetotalrunsto animportantconsiderationforbothshort-and thethousands.Admittedly,manyofthesecontacts medium-termpolicyconsiderations. arewithaudiencesatspeeches,butasignificant RecentresearchattheFederalReserveBank numberareone-on-oneorinsmallgroups.These ofSt.Louisshowsthatifthereisashort-run arecontactsinvolvingconversationsaboutmone- tradeoffbetweeninflationandresourceutiliza- tarypolicyissues,andIdothebestIcantofield tion,theadoptionofanoperationalgoalforlong- allthequestionsthatcomemywaywithforthright termpricestabilitylikelywouldenhancethe andinformativeanswers. FOMC’sabilitytostabilizebothoutputandinfla- tion.WhatdoImeanbyanoperationalgoalfor long-termpricestability?WhatIamtalkingabout IMPROVING COMMUNICATIONS isaclarificationofthedesiredinflationobjective ABOUT THE STANCE OF overarelativelylongplanninghorizon.In1999, MONETARY POLICY weareseeingareboundofinflationfromthe Iwillconcludebydiscussinghowwemight 1998level.WilltheFedviewthereboundasthe improveourcommunicationaboutthestanceof beginningofageneralaccelerationorjustanoff- policy.Ithinkenhancingthecredibilityofpolicy setnowthatthetemporaryoilpricedeclinelast isextremelyimportant.Itisimportanttoclarify yearisover?Thatis,willtheFedviewthe1999 thelong-termpolicyobjective.Butfortheobjec- rateofinflationasconsistentwithitslong-run tivetobecredible,itmustbeconsistentwiththe objectiveoraboveit?Withoutthelong-term economicpolicyobjectivesofthelegislativeand benchmark,themarketscannotbesure. executivebranchesofgovernment.Therehasbeen Toseewhyclarifyingthelong-termobjective anamazingdevelopmentinthelastdecade—the isimportantforinterpretingthestanceofpolicy, declineofinflation.Adecadeago,hardlyanyone considertheinformationproblemthemarkethas 5 MONETARYPOLICYANDINFLATION tosolvewhenpolicyis“perfect”andthepolicy whyIwouldtargeta1percentgrowthtrendin objectiveisexplicit.Eveninthiscase,because theCPI.Afewyearsago,theBoskinCommission westillhavemuchdisagreementabouthowthe reportedonmeasurementbiasintheCPI.The worldworks,andcannotpredictunforeseen commissionconcludedthattheCPIoverstated events,marketswillnotknowforsurehowa growthinthetruecostoflivingby1.1percentage givenpieceofnewswillaffecttheshort-runpath pointsperyear.Sincethen,theBureauofLabor ofinflationorwhetheritwilltriggerachangein Statisticshasmodifieditsproceduresinaway theFed’spolicystance.Opinionsaboutthese thatcorrectsabouthalfofthatbias.Advancesin short-runmatterswilldiffer.Butmarketswill technologyhaveledtonewgoodsandquality knowthelong-termpriceobjective,andtheobjec- improvementsthatwecannotmeasureonatimely tivewillnotchangebecauseofthenewsorthe basis.Therefore,inmyjudgmentatthistime, giventhefindingsoftheBoskinCommission, Fed’sshort-termreactiontoit. otherinformationand,ofcourse,subjecttofur- Nowsupposethatthepricestabilityobjective therresearch,a1percentinflationrateasmeas- isvaguelystated.Marketparticipantsdonotknow uredbytheCPIisareasonableapproximationto whetherpricestabilitymeans3percentinflation zeroinflation,properlymeasured.Buttheactual intheCPI,asweexperiencedfrom1991to1996; numberfortheinflationtargetisnotnearlyas 2percentinflation,aswehaveseenoverthelast importantasisthedecisiontochooseaparticular threeyears;or1percentCPIinflation,asIwould numberandcreateabenchmarkformakingpolicy recommend.Intheabsenceofapreciselong-term transparentandaccountable.Wecanchange objective,marketsnotonlyhavetofigureouthow manythingstoimproveourcommunication incominginformationaffectstheshort-runpath aboutthestanceofpolicy.Attheendoftheday, forinflationandtheprobabilityoffutureFOMC however,Idonotthinkanyofthiswillmake policyactions,butalsomustdecidehowallof muchdifferenceiftheFOMC,theAdministration thiswillaffectthelong-termobjective.Whenthe andtheCongressdonotfindawaytomakethe long-termpolicyobjectiveisimprecise,thelong- long-termpriceobjectivemoreconcrete. termoutcomemaybetheresultofanaccumula- Communicationisobviouslynotasubstitute tionofshort-rundecisions. fortheFOMCitselfbeingveryclearinitsinternal Thelackofanoperationalobjectivemightbe deliberations.Ihavebeenfollowingmonetary thoughtofastheabsenceofanominalanchor. policyforalongtimeandbelievethattheFed Thisabsenceisonereasonwhymarketsandthe hasmadeenormousstridesindefiningandpur- generalpopulationpaysomuchattentiontoshort- suinganeffectivepolicy.Butthereismoretobe runpolicyactionsandseeminglyroutinespeeches done,andimprovingcommunicationsisanarea byFedpolicymakers.Ithinkonereasonwhythe we’reworkingon.IhopeI’veprovidedagood Fedreceivedmuchlessattentioninthe1950sand senseofjusthowimportantandhowdifficult 1960sisbecausethelong-termpolicyobjective theseissuesare.I,forone,wouldbedelightedto wasdefinedbythedollar’sattachmenttogoldin hearfromacademicandmarketexpertswith theinternationalmonetaryarrangementsmade ideasastohowwecouldcommunicatemore afterWorldWarII.Becauseofthesearrangements, effectively. thepublic’sestimateofthelong-terminflation ratewasnotmuchaffectedbyspeechesorshort- runpolicyactions.Inretrospect,thepublicshould SUMMARY havebeenpayingmoreattentiontothoseshort- rundecisionsbecausetheywereinconsistent Communicationiscentraltoasuccessful withthesurvivalofthatinternationalmonetary monetarypolicy.TheFederalReservesetsthe systemintothe1970s. overnightfederalfundsrate,leavingalllonger- Asanaside,Iwanttotakeamomenttosay terminterestratestobedeterminedbymarket 6 CommunicatingtheStanceofMonetaryPolicy forces,themostimportantofwhichisthemarket’s expectationsoffutureshort-terminterestrates. Thoseexpectations,inturn,dependcriticallyon viewsconcerningfutureFederalReservepolicy. Ibelievethatthemarkethasgreatconfidence thattheFedwillkeepinflationlowandstable, butmorecanbedonetofurtherstrengthenthat confidence.Atthetopofmyagendainthisregard isfortheFedtobemoreexplicitaboutitsinfla- tionobjective—anobjectiveIbelieveshouldbe zeroinflation,properlymeasured. Interestrateswillnotbeperfectlystableif theFedissuccessfulinachievingitsgoaloflow andstableinflation.Thatshouldbecleartoevery- onewhohaswatchedmarketinterestratesfluc- tuateinrecentyearseventhoughthetrendrateof inflationhaschangedlittle.Asvariouseconomic developmentsrequireinterestrateadjustments tobeconsistentwithlowinflation,theFedmust processincominginformationasbestitcanto decidewhenandbyhowmuchtoadjustthefed- eralfundsrate.Thebetterthemarketunderstands howandwhytheFedreachesitsdecisions,the betteritwillbeabletorespondtonewinforma- tioninthesamewaytheFedrespondstothesame information.Theresultwillbeasmootherand moreefficienttransmissionofmonetarypolicy changestotheeconomy’sproduct,labor,and capitalmarkets. Improvingcommunicationisimportant,then, becausetheFedandthemarketbothhavetodeal withinherentlyunforecastableevents.Onmany issues,therearenosettled,confirmedtheorieson whichwecanbaseouractions.Likeeconomists andmarketexpertseverywhere,wenaturally differamongourselvesonsuchissues.With importantadvancesineconomicscience,how- ever,theFedhasgonealongwaytonarrowthe rangeofuncertainty.Thereisalottobedone, butwe’reworkingonit. 7

Cite this document

APA

William Poole (1999, November 3). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19991104_poole

BibTeX

@misc{wtfs_speech_19991104_poole,
  author = {William Poole},
  title = {Speech},
  year = {1999},
  month = {Nov},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19991104_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}