Defining a single monetary policy rule for the Federal Reserve to follow is ill-advised, Federal Reserve Bank of San Francisco President and CEO John C. Williams said Thursday.
While some have suggested confining the Fed to one rule that would dictate its policy decisions, this would be counterproductive since the Fed's unique structure brings together people with "different backgrounds, different experiences, and different opinions," Williams told NYU's Stern School of Business, according to prepared text released by the Fed.
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."
Using a range of models, rules, and data provides the fullest range of information possible, Williams said. "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."
