In a speech in Washington last week I made a proposal to restore the legislative requirement that the Fed report and be accountable for its strategy for monetary policy. Such a requirement was the law throughout the 1980s and 1990s, but was removed in 2000. There is a big difference, however, between the old law and what I proposed. The old law focused on reporting about the “ranges of growth or diminution of the money and credit aggregates,” while the new law would focus on the “strategy, or rule, of the Board and the FOMC for the systematic adjustment of the federal funds rate in response to changes in inflation and in the real economy needed to achieve the price stability objective.” Money would still be a factor in the strategy in that the interest rate would be determined in the money market through the demand and supply of money. The Fed would have the discretion to choose the strategy, but would be required to explain in writing and in hearings any deviations from the strategy. One possible strategy could be the Taylor rule, but the Fed could choose any rule as long as it stuck with it or explained why it deviated from it. .
Here is some press reaction to the proposal
Bloomberg News: “Taylor Proposes Altering Fed Law to Require 'Systematic' Rate Setting Rule”
Dow-Jones: "Stanford’s Taylor Urges Turning Monetary Policy Rules Into Law to Limit Fed”
Reuters: “Economist Taylor Wants New Law for Fed Policy"
Globe and Mail: “A Rules Based Fed?”
Another reaction, not covered in these articles, came from some of the people who had experience at the Fed in the 1980s and 1990s. They say that they found the old reporting and accountability requirements to be of value in creating a process at the Fed for discussing a monetary strategy and that the new requirements could be of similar benefit.