Fed's Fischer argues against foisting policy rule on US central bank

The US central bank's second-highest ranking official argued against the use of "simple" mathematical rules when deciding on monetary policy.

While rules such as the well-known 'Taylor-rule' might be useful as a starting point for discussions or as a benchmark there were several arguments to be made against following them in a strict fashion, said Federal Reserve vice-chairman Stanley Fischer.

In remarks prepared for a speech at the Hoover Institution Monetary Policy Conference, he argued that policymakers needed to address not just the most appropriate current setting for short-term interest rates but also their path.

However, there was sometimes a need to deviate "substantially" from what such rules might dictate.

As well, the structure of the economy changes over time, which would argue in favour of changing between policy rules, he said.

Hence the usefulness of reaching decisions through a committee, bringing together multiple and diverse points of view.

"Committees can aggregate a large volume of diverse information about current and expected future economic conditions. The information includes anecdotes and impressions gleaned from business and other contacts, which can provide insights that are not recorded in current data releases."

Nonetheless, transparency and accountability must figure prominently in such a "flexible" environment.

"Emphasis on a single rule as the basis for monetary policy implies that the truth has been found, despite the record over time of major shifts in monetary policy--from the gold standard, to the Bretton Woods fixed but changeable exchange rate rule, to Keynesian approaches, to monetary targeting, to the modern frameworks of inflation targeting and the dual mandate of the Fed, and more. We should not make our monetary policy decisions based on that assumption."