Federal Reserve Chairman Ben S. Bernanke said U.S. central bankers are looking “very carefully” at proposals to link changes in monetary policy to specific economic thresholds, such as the jobless rate.
The Fed now ties its outlook for the benchmark interest rate to a calendar date. The central bank has said the federal funds rate is likely to remain “exceptionally low” at least through mid-2015.
One alternative “would be to provide some specific numbers on what economic conditions would prompt us or at least make us consider the process of removing accommodation,” Bernanke said in response to a question after a speech in New York.
Chicago Fed President Charles Evans has proposed holding interest rates near zero until unemployment falls below 7 percent so long as the outlook for inflation does not climb above 3 percent. Other Fed presidents have suggested different thresholds. Some, including Richmond Fed’s Jeffrey Lacker, have opposed the idea.
Bernanke said such an approach was “promising,” while adding that “the committee is still discussing this particular approach. I don’t want to front-run those discussions, which are still ongoing.”
He also said that “monetary policy is a complex process” that poses challenges to this strategy. “Can we reasonably summarize those conditions under which we would begin to tighten policy with just two numbers, two or three numbers?”
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