Using a "multiyear policy perspective" would lower "the uncertainty that monetary policy as it is currently conducted spawns," according to Federal Reserve Bank of Dallas President Richard Fisher.
The multiyear approach becomes "especially important" when interest rates are zero-bound, Fisher said at a Dallas Fed conference, according to prepared text released by the Fed. "The explanation is that by interfering with the normal conduct of monetary policy, the zero bound increases the likelihood that policy will miss its objectives year after year in the same direction, so that the errors accumulate over time."
He stressed he is "not advocating any change to the FOMC's 2 percent inflation target. My point is simply to highlight the longer-term consequences of what might appear to be smallish, shorter-term deviations from the norm. Business operators plan capital expenditure and payrolls not in one- or two- or even three-year increments; they plan and budget over longer-term horizons. The nominal stability that people need if they are going to negotiate multiyear contracts is a multiyear nominal stability."
Fisher added, "A policy that takes a longer-term perspective and is properly communicated and executed-so as to instill confidence that monetary policy will hew to a 2 percent inflation target rather than fixate on the run-rate of the past four quarters or the outlook for the next four-may better supply the longer-term comfort that households and businesses need to plan and budget. Such a policy would reduce the uncertainty that monetary policy as it is currently conducted spawns and would be more effective in doing its part to assist in economic expansion."
