A rate increase “promised date,” which could be manipulated based on economic conditions, could be the primary policy tool when the federal funds rate target is near zero, according to Federal Reserve Bank of St. Louis president James Bullard.
According to some models, Bullard said, the Federal Open Market Committee could influence financial market conditions and provide monetary accommodation by shifting the promised date. He questioned the credibility of such statements.
“If the economy is actually performing quite well at the point in the future where the promise begins to bite, then the committee may simply abandon the promise and return to normal policy,” he said. “But this behavior, if understood by markets, would cancel out the initial effects of the promise, and so nothing would be accomplished by making the initial promise.”
