(Adds more Poole remarks, background on most recent FOMC
NEW YORK, April 2 Federal Reserve Bank of St.
Louis President William Poole said on Monday that a clear
monetary policy rule provides a central bank with a powerful
tool in its quest for sustainable growth and low unemployment.
"Focus on monetary policy regimes and policy rules as the
instrument of policy, not the near-term choice of the federal
funds rate target," he said in prepared remarks to the New York
chapter of the National Association for Business Economics.
"If the (Federal Open Market) Committee communicates its
objectives and strategy in a transparent and credible fashion,
the bond market and other forward-looking financial markets
will amplify the Committee's near-term decisions and thereby do
a good deal of its work for it," he said.
Poole, a voter this year on the Fed's interest rate-setting
committee, is a long-time advocate of inflation targeting but
made no direct mention of this in his prepared remarks. The Fed
is currently pondering whether it should adopt a target, as
part of a wider assessment of its communication strategy.
The Fed left interest rates unchanged at 5.25 percent at
its last meeting. But it removed from its policy statement an
explicit reference to additional policy firming, thereby
creating flexibility for a rate cut if U.S. growth weakened
However, the Fed also left its anti-inflation bias intact
by stressing that inflation remained its predominant concern --
a sign that borrowing costs were not heading down soon.
Poole said the economy was on a solid footing and the
recently seen weakness in fourth quarter economic growth
reflected a change in the level of inventories held by
businesses. He also employed a fairly relaxed tone in his
characterization of inflation.
"Our economy is sound. The GDP (gross domestic product) gap
is small; economic activity is growing at approximately the
same rate as potential despite the housing slowdown; and,
inflation is retreating as energy prices stabilize," he said.