WASHINGTON Nov 18 The Federal Reserve should
be subject to new legal boundaries that make monetary policy
more predictable and leave give policymakers less wiggle room,
a former U.S. Treasury official and prominent economist said on
John Taylor, who invented a widely used monetary policy
framework known as the "Taylor Rule", said he was proposing new
legislation that would force the Fed to develop a clear
strategy for meeting its inflation target.
"It is possible to legislate a rule for monetary policy,"
he said at a conference on monetary conference at the CATO
Institute, a conservative libertarian think tank.
"A legislative rule can reverse the short-term focus of
policy and restore credibility in sound monetary principles
consistent with long-term price stability and economic
Such a policy would bolster Fed independence by
establishing clear guidelines for its conduct, said Taylor, who
was Undersecretary for International Affairs at Treasury under
George W. Bush.
TAYLOR RULE II?
"While passing such legislation necessarily involves the
President and the Congress of the United States it does not
mean that the President or Congress should insert themselves in
the operation decision-making process of the Federal Reserve.
However, Taylor said he had not yet discussed the proposal
Taylor was one of several economists earlier this week who
signed a letter opposing the Fed's latest $600 billion round of
monetary easing, arguing the policy has more risks than
The moves, known as round two of quantitative easing or
QEII, has sparked criticism from those who, like Taylor believe
it creates the risk of future inflation and will be difficult
Asked about a Republican proposal to alter the Fed's
mandate to force it to focus solely on inflation, rather than
also aiming for "maximum sustainable employment," Taylor said
he needed to review the bill but appeared open to the idea.
"For example, the word maximum employment is there, that's
kind of an older term that's there, so I think's there (could
be) adjustments in the language," he told reporters.
Loud Republican opposition to fresh bond purchases by the
Fed have sparked some concern about excessive political
intervention in monetary affairs.