William Wallace Watch

From MarketWatch: [St. Louis Federal Reserve President James Bullard] said he would like the policy-setting Federal Open Market Committee “to adopt a state-contingent policy rule that would allow for the adjustment of asset purchases as new information on the economy becomes available.”

If I don’t have my Fed decoder ring on backwards, I would take “state-contingent policy” to be a form of the history contingent policy I predicted the Fed would start talking about. BTW, Bullard wants the market to stop looking at interest rate policy as the only indicator of monetary policy. He’s also sitting on the FOMC this year.

Prediction: no William Wallace speeches from Ben

In the next two years — before the memory of this recession fades, but long enough from now that it doesn’t risk unanchoring expectations — Ben Bernanke will begin peppering his speeches and testimony before Congress with references to some form of history contingent policy (e.g. price level or nominal output targeting, state-dependent inflation targets, etc). This will signal a move of policy in this direction.

I give (much) lower odds that there will be a Volker-esque announcement of an explicit move to such a policy.

We watch too many movies if we think the Fed chairman giving heroic speeches would affect people’s expectations of Fed policy ((At least affect them in the way he or she would want. If Ben gave a speech tomorrow announcing a return to the gold standard, people would think he was crazy.)). As Forrest Gump might say, “policy is as policy does”.