decisions without fear of direct political interference. it does not mean – nor should it – that the central bank is not accountable for its policies. it is important to remember that the federal reserve does not select its own goals. instead, congress sets the goals it wants the fed to pursue with monetary policy. since 1978, congress has mandated that the fomc “ shall maintain long run growth of the monetary and credit aggregates commensurate with the economy ’ s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long - term interest rates. ” the goals of monetary policy are rightly a subject of legitimate debate. i have frequently argued that these goals are too broad, and they risk making the fed responsible for more than it can actually deliver. that, from my perspective, risks undermining the fed ’ s credibility and invites policymakers to lurch from one goal to the next when it seems convenient, thus making it more susceptible to political pressure. as a consequence, i have favored a single mandate for the fed – price stability – to increase the clarity of the objective and make it easier to hold the fed accountable. nevertheless, given a mandate, what central bank independence means is that congress has left the decisions of how best to achieve this mandate to fed policymakers. why did congress design the fed this way? there are two very important reasons. first, monetary policy affects the economy with sometimes long and variable lags, but elected politicians, and even the public, often make decisions with the next month, next quarter, or the next election in mind. monetary policy actions taken today will often not have their full effect on the economy for at least several quarters and perhaps as long as several years. that is why monetary policy choices today must focus on the intermediate to long term and anticipate what the economy might look like over the next one to three years. indeed, the mandate itself stresses the long run focus of monetary policy. moreover, there can be a conflict between what monetary policy may be able to achieve over the short term versus its impact over the long term. for example, in the short term, it might seem expedient or even desirable to try to spur economic growth and employment by conducting excessively accommodative monetary policy. yet, this could lead to very bad economic outcomes in the long term, including higher inflation, higher interest rates, and an eventual tightening of policy to control inflation that

instead, i believe we should describe how we will respond to the data ; that is, we should describe a reaction function. i frequently consider such reaction functions as i think about policy. these are typically taylor - like rules, named for stanford university economist john see charles i plosser, “ the benefits of systematic monetary policy, ” speech given to the national association for business economics, washington economic policy conference, washington, d. c. ( march 3, 2008 ). finn e kydland and edward c prescott, “ rules rather than discretion : the inconsistency of optimal plans, ” journal of political economy, 85 ( june 1977 ), pp. 473 – 491. bis central bankers ’ speeches taylor who first proposed them in the early 1990s. these policy rules typically call for the targeted funds rate to respond to deviations of inflation from some desired goal and to deviations of output from some measure of potential – sometimes referred to as economic “ slack ” or the “ gap. ” sometimes such gaps are translated into deviations from full employment. such robust rules recognize that data are measured imprecisely and are subject to revision. moreover, they have been shown to perform well in a variety of models and conditions. i believe these robust rules can be useful guideposts for policymakers and the public in assessing the stance of monetary policy and its expected path. communicating about such guideposts would enhance transparency and help make policy more systematic. however, i don ’ t believe that we need to follow rules mechanically. judgment will always be required. yet, policymakers and the public should be very cautious when they call for policy rates to deviate in significant ways from these guideposts. making such judgments should require careful analysis, and the justification for deviating from the guidelines should be clearly communicated to the markets and to the public. thus, policymakers will still be able to exercise discretion, but using rules as guideposts will enhance transparency and effective communication. improving transparency this leads me to my third important principle for monetary policy – communicating in a clear and transparent way. in recent speeches, i have proposed that the fomc could improve communication and transparency by publishing a more comprehensive monetary policy report on a regular basis, perhaps quarterly. 3 this report could incorporate a discussion of such robust systematic rules i referred to a moment ago in its description of the underlying policy framework. the rules could serve as a benchmark for the current stance of policy and the expected path of