Single monetary policy rule “not ready for prime time” – Fed’s Williams

New York, New York – Prescribing a single monetary policy rule for the Federal Reserve to follow is ill-advised, said John C. Williams, president and CEO of the Federal Reserve Bank of San Francisco.

While some have suggested confining the Fed to one rule that would dictate their policy decisions, Williams said this would be counterproductive, pointing out that the Fed’s unique structure brings together people with “different backgrounds, different experiences, and different opinions.” He continued, “There is a lot of disagreement among policymakers and economists about what works best. Trying to pigeonhole all of them into one rule runs counter to the federated structure of the Fed that seeks to incorporate a diversity of views. Operating under one rule would mean losing the richness that’s fundamental to our success.”

Williams said he favors looking at a range of models, rules, and data to get the fullest range of information possible. “The truth is that there is no absolutely right rule. They’re all just different ways to think about policy, and to come to a truly educated decision, it helps to look at the range of options.”

Ultimately, he said, it would be unwise to place all bets on one approach.

“While I understand the impetus behind wanting a single rule to follow, it’s just not ready for prime time. It reminds me of the FDR quote that rules aren’t necessarily sacred, principals are.”

Williams made the remarks at an address to students and faculty at NYU’s Stern School of Business.

The Federal Reserve Bank of San Francisco (SF Fed) serves the public by promoting a healthy, sustainable economy, and supporting the nation’s financial and payment systems. With offices in Los Angeles, Seattle, Salt Lake City, Portland and Phoenix, the Bank serves the Twelfth Federal Reserve District, which includes one-fifth of the nation’s population and represents the world’s fourth-largest economy. As part of the nation’s central bank, the SF Fed informs monetary policy, regulates banks, administers certain consumer protection laws and acts as a financial partner to the U.S. government.