Fed monetary policy review hinging on three questions; report by early next year expected

Answers to three questions are being sought as the Federal Reserve conducts its review of monetary policy actions – including how the communications of interest-rate policies be improved.

In a speech before an event sponsored by the San Francisco Federal Reserve Bank (and held in San Francisco), Federal Reserve Board Vice Chair Richard Clarida said the Fed’s review of its monetary policy strategy, tools, and communication practices – which began earlier this year – is aimed at answering three questions:

  • Can the Federal Reserve best meet its statutory objectives with its existing monetary policy strategy, or should it consider strategies that aim to reverse past misses of the inflation objective?
  • Are existing monetary policy tools adequate to achieve and maintain maximum employment and price stability, or should the toolkit be expanded (and how)?
  • How can the FOMC’s communication of its policy framework and implementation be improved?

Clarida said that information gleaned from its “Fed Listens” events (including the one in San Francisco at which he was speaking) is being used to answer the questions.

However, he also said that the Federal Reserve believes its existing framework for exercising monetary policy, in place since 2012, has served the central bank well and has enabled it to achieve and sustain statutorily assigned goals of maximum employment and price stability.

“However, we also believe now is a good time to step back and assess whether, and in what possible ways, we can refine our strategy, tools, and communication practices to achieve and maintain our goals as consistently and robustly as possible,” he said.

Clarida told the group that the Fed will share its findings with the public when the review is completed, likely during the first half of next year.

The Federal Reserve’s Review of Its Monetary Policy Strategy, Tools, and Communication Practices