so, it is useful to spell out exactly what the fomc is supposed to do. the federal reserve act specifies the fed “ 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. ” since moderate long - term interest rates generally result when prices are stable, many have interpreted these goals as a dual mandate to manage fluctuations in employment in the short run while preserving price stability in the long run. however, most economists are dubious of the ability of monetary policy to predictably and precisely control employment in the short run, and there is a strong consensus that monetary policy cannot determine employment in the long run. as the fomc noted in its statement on longer - run goals adopted in 2012, the maximum level of employment is largely determined by nonmonetary factors, such as changing demographics, which affect the structure and dynamics of the labor market. in my view, excessive focus on short - run control of employment weakens the credibility and effectiveness of the fed in achieving its price stability objective. we learned this lesson most dramatically during the 1970s when, despite the extensive efforts to reduce unemployment, see the federal reserve bank of philadelphia, “ timeline to transparency, ” www. philadelphiafed. org / aboutthe - fed / transparency / ( accessed october 9, 2014 ). bis central bankers ’ speeches the fed essentially failed, and the nation experienced a prolonged period of high unemployment and high inflation. the economy paid the price in the form of a deep recession, as the fed sought to restore the credibility of its commitment to price stability. when establishing the longer - term goals and objectives for any organization, and particularly one that serves the public, it is important that the goals be achievable. assigning unachievable goals to organizations is a recipe for failure. for the fed, it could mean a loss of public confidence. i fear that the public has come to expect too much from its central bank and too much from monetary policy, in particular. we need to heed the words of nobel prize winner, milton friedman. in his 1967 presidential address to the american economic association, he said, “ we are in danger of assigning to monetary policy a larger role than it can perform, in danger of asking it to accomplish tasks that it cannot achieve, and as a result, in danger of

public. the fomc ’ s recent moves to publish guidelines on its longerrun goals and policy strategy and the policy assumptions that underlie fomc projections are great strides toward this goal. however, more can be done. in particular, i believe the fomc should continue to work toward increasing the public understanding of how policy will react systematically to changes in economic conditions. i believe the fomc should move forward to describe a reaction function and then communicate our actions and decisions in terms of this reaction function. a detailed monetary policy report could be a useful vehicle for such enhanced communication. because systematic policy is easily communicated to the public, it will improve the transparency and predictability of monetary policy, which reduces policy surprises. businesses and consumers are more informed about the course of monetary policy because they understand how policymakers are likely to react to changing economic circumstances even if they are not certain what those economic conditions might be. equally important in my view is that greater clarity about policymakers ’ reaction function strengthens accountability. thus, systematic policy, communicated transparently, strengthens accountability and serves to preserve the central bank ’ s independence. bis central bankers ’ speeches