St. Louis Fed’s Approach to Monetary Policy Won’t Change

Some of you may be surprised to see a new face on this page. On April 1, I became president and CEO of the St. Louis Fed, succeeding William Poole. If you supported Bill’s thinking on monetary policy, take comfort in knowing that I did, too, and plan to continue in that monetarist tradition for which the St. Louis Fed is known.

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In essence, price stability should be the No. 1 goal of policymakers today. Forty or 50 years ago, policymakers took on multiple objectives: low inflation, low unemployment, low nominal interest rates, stable exchange rates—even growth in housing production. More recently, the Fed’s mission has been boiled down to the dual mandate of price stability and maximum sustainable employment. Ben Bernanke and his two immediate predecessors have emphasized that price stability is a precondition for maximum sustainable employment.

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One important issue facing the FOMC concerns the use of core measures of inflation to judge success or failure. This practice works well when energy and food prices are volatile but ultimately rise at the same rate as other prices. But that is not what is happening today. As many of you are aware, energy prices in particular have simply been rising faster than other prices most of the time over the past five years.