narayana kocherlakota : on the objectives of monetary policy speech by mr narayana kocherlakota, president of the federal reserve bank of minneapolis, to the economic club of marquette county, marquette, michigan, 22 september 2014. * * * thanks to david fettig, terry fitzgerald and sam schulhofer - wohl for their assistance with these remarks. introduction thank you for that generous introduction, and thank you for the invitation to join you here today. this is my second trip to marquette since becoming president of the federal reserve bank of minneapolis five years ago, and i ’ m glad to be back. i ’ m planning to spend most of my time today talking about the objectives of monetary policy. as you will hear, the fomc has made great progress in formulating, and communicating, the objectives of monetary policy to the public. i will discuss some of that progress and then move on to some ideas about how the committee can make further improvements along these lines. i look forward to your questions, as well – i always learn a lot from q & a sessions. before i start, though, i must remind you that the views i express today are my own and not necessarily those of my federal reserve colleagues. federal reserve system basics let me begin with some basics about the federal reserve system. i like to tell people that the fed is a uniquely american institution. what do i mean by that? well, relative to its counterparts around the world, the u. s. central bank is highly decentralized. the federal reserve bank of minneapolis is one of 12 regional reserve banks that, along with the board of governors in washington, d. c., make up the federal reserve system. our bank represents the ninth of the 12 federal reserve districts and includes montana, the dakotas, minnesota, northwestern wisconsin and the upper peninsula of michigan. eight times per year, the federal open market committee – the fomc – meets to make monetary policy. all 12 presidents of the regional federal reserve banks – including me – and the governors of the federal reserve board contribute to these deliberations. however, the committee itself consists only of the governors, the president of the federal reserve bank of new york and a rotating group of four other presidents. i ’ m one of those four presidents this year. in this way, the structure of the fomc mirrors the federalist structure of our government, because representatives from different regions of the country – the various presidents –

have input into fomc deliberations. this basic federalist structure has a long history. in fact, this year is the centennial of the opening of the 12 reserve banks and the start of the work undertaken by the federal reserve system. it ’ s been a fascinating hundred years, with many twists and turns along the way. i ’ m sure that many of you have questions about that journey. the answers to all of your questions – and probably more – are on a website that the fed has created at federalreservehistory. org. i encourage you to visit this site to learn more about the people, places and events that have shaped federal reserve history. i won ’ t say too much more about fed history – perhaps to the relief of some of you! – but i do want to draw your attention to one of the things that i think has changed the most over the federal reserve ’ s history : our communication with the public. a hundred years ago, congress created a system that was designed specifically so that the residents of main street would have a voice in monetary policy. technology has changed a lot since 1914 – i ’ m told that they didn ’ t even have smartphones back then – and so the ways that we gather bis central bankers ’ speeches information from main street have changed. but this fact - finding is still an important part of the making of monetary policy. indeed, tomorrow, i will meet with upper peninsula business leaders to gather exactly this kind of information. communication is a two - way street, however. during the past century, the federal reserve ’ s communications to the public about its monetary policy actions have also evolved greatly. the pace of change was especially rapid in the eight years under chairman bernanke ’ s leadership. so, as the federal reserve system plans for its second century, i would say that the importance of two - way communication is a key lesson from the system ’ s first century. in order for the fed to continue to be effective, it needs to communicate its policy decisions transparently to the public. conversely, it also needs the public ’ s input on how those policies are affecting them. events like the one today, and my meeting with business leaders tomorrow, are a key part of fostering that two - way communication. with that background in mind, let me turn back to the fomc and the making of monetary policy. i mentioned that the fomc meets eight times per year. at those meetings, we decide