Fed's Dudley Rejects Rule-based Model For Monetary Policy

By Greg RobbMarketWatch Pulse

A strict rule-based approach to Federal Reserve policy would not give the U.S. central bank enough flexibility to adjust to a "complex and ever-changing" world, said William Dudley, the president of the New York Fed, on Thursday. "I don't believe that any prescriptive rule...can take the place of a monetary policy framework that incorporates the Fed's collective assessment of the large number of factors that impact the outlook," Dudley said in a speech to the Brookings Institution. Some House Republicans are pushing legislation that would mandate the Fed follow a policy rule like the one developed by Stanford University economist John Taylor and explain to Congress when the central bank deviated from its prescribed path. Dudley said the Taylor rule had its merits but was not forward-looking. Having to justify deviations from a rule to Congress would have slowed down how the central bank responded to a crisis, he said.

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