The Fed at a crossroads: Where to go next?
In the wake of the financial crisis, which brought us unconventional monetary policy such as interest rates at zero for the past seven years and quantitative easing, how should the Federal Reserve decide on the appropriate level of interest rates? Should it devise and stick to a rule that ties interest-rate targets to the inflation rate and slack in the economy? Should it pay more attention to overall financial conditions — or less?
On October 15, the Hutchins Center on Fiscal and Monetary Policy at Brookings hosted a discussion on what criteria the Fed should use to set interest rates, featuring William Dudley, president of the Federal Reserve Bank of New York, and Stanford economist John Taylor, who crafted the widely cited Taylor Rule for the Fed to use in setting interest rates. David Wessel moderated and took questions from the audience.