From Philadelphia Fed President Plosser:

To be more concrete, many versions of the simple rules that I refer to when gauging the current stance of monetary policy call for a funds rate that is above the current funds rate.

‘Taylor Rule’ etc.

But the severity of the events affecting the smooth functioning of financial markets suggests that rates, perhaps,


should be somewhat lower than simple rules might suggest. However, determining the appropriate extent of such extra accommodation is difficult to quantify, but should also be disciplined by systematic policy.

Consequently, there are, and should be, limits to such departures from the guidance given by simple rules.

Seems he’s in the camp that the Fed is at or near its limits regarding rate cuts when inflation is this threatening.

One cannot, and should not, ignore other fundamental aspects of policy, especially the tendency for inflation to accelerate when policy is unduly easy.

This is the mainstream view – inflation doesn’t just go up, it accelerates when expectations begin to elevate.

Moreover, departures from the more systematic elements of making policy decisions must be relatively transitory and reversed in due course if we are to keep expectations of future inflation well-anchored.

Bernanke conspicuously left this out of his testimony last week.

Otherwise we risk eroding the public’s confidence in monetary policy’s commitment to deliver price stability, and we know from the 1970s and early 1980s that the cost of regaining the public’s confidence can be quite high.

Sounds like he’s in the Fisher camp and not inclined to favor another cut with inflation where it is.

The benefits of operating in an environment with the transparency afforded by simple rules is that it gives monetary policymakers the ability to anchor expectations and affords them the opportunity to temporarily deviate from the simple rules in extraordinary circumstances without eroding central bank credibility. We are now, perhaps,

‘PERHAPS’ again – meaning we might not be.

in a period of extraordinary circumstances and have deviated from the benchmarks suggested by simple rules. But such deviations should be temporary and limited and promptly reversed when conditions return to normal.

Can’t be more clear on this.

Monetary policymakers should continue to pursue their efforts to develop and put into practice more rule-like behavior. It is one of the more important paths to sound monetary policy over the long-run.

Looks like more movement to the Fisher camp as the March 18 meeting approaches.

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