New York Fed CEO Williams discusses robust monetary policy

Investing.com -- New York Fed President and CEO John C. Williams emphasized the importance of robust monetary policy in the face of pervasive uncertainty during his speech at the Reykjavík Economic Conference in Iceland. Williams, who has spent three decades in central banking, addressed the challenges posed by global economic changes and the necessity for central banks to adapt their strategies accordingly.

Williams began by acknowledging the inherent uncertainty that defines the monetary policy landscape, citing former Fed Chair Alan Greenspan’s characterization of uncertainty as a central feature. He pointed out that structural changes, such as the rise of artificial intelligence, shifts towards deglobalization, and financial innovations, will continue to shape this landscape.

The debate between policy rules and discretionary actions was a focal point of Williams’ speech. He suggested that the most effective approach to monetary policy under uncertainty is a blend of predictability and the ability to adapt to changing conditions. Williams referenced the work of macroeconomists like John Taylor, who have contributed to the understanding of how policy rules can be consistent with the Fed’s historical interest rate setting practices.

Williams then discussed the principles of a robust monetary policy, which aims to balance consistency with effectiveness across various economic scenarios. He identified three foundational principles for success: accountability and independence, transparency, and well-anchored inflation expectations. These principles, Williams argued, are interdependent and reinforce one another.

In terms of policy design, Williams explained that robust policy-making is an exercise in risk management, guarding against high-cost risks and accepting those with lower costs. He introduced the concept of "fault tolerance" from engineering, applying it to monetary policy as the capacity to maintain normal operations despite faults or uncertainties. He illustrated this concept with examples showing how a robust policy operates effectively across different economic models and varying degrees of uncertainty.

Williams concluded by highlighting the importance of maintaining well-anchored inflation expectations, especially in times of high uncertainty. He clarified that robust policy approaches do not resolve the rules versus discretion debate but provide insights to help navigate an uncertain world. Williams’ remarks, delivered in Iceland, reflect his personal views and do not necessarily represent those of the Federal Open Market Committee or the Federal Reserve System.

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