##evable path back to full employment and price stability following shocks that push us away from either of our objectives. i regard the policymaking process as a systematic effort to investigate what policy setting would deliver the best achievable set of economic outcomes, 3 taking into consideration all available information, including risks not fully summarized in the base case point forecasts. our approach is not greatly different from those of central banks that operate inflation but, of course, predictability is not an end in itself. a policy could be completely predictable, but also incompatible with the central bank ’ s goals. the policy response to the extreme shock of the financial crisis was predictably vigorous, even if its detail was hard to specify in advance, and the knowledge that the federal reserve would act “ as needed ” to promote the dual mandate anchored inflation expectations and helped to avoid a deflation outcome. in formal terms, this approach would be described as a target - rule or forecast - targeting rule. bis central bankers ’ speeches targeting regimes, but in our case we explicitly seek to promote both aspects of our dual mandate. 4 the basic question is how the fomc should implement monetary policy to best push the economy back to its dual objectives. prescriptions from simple policy rules such as taylor rules, named after stanford economist john taylor, have a legitimate role to play in this evaluation as do more complex simulations such as optimal control rules. in a taylor rule, the nominal federal funds rate depends on the equilibrium or neutral real short - term rate of interest, the deviation of the level of economic activity from estimates of the level of activity that would be consistent with long - run price stability, and the deviation of inflation from the central bank ’ s target. 5 the taylor rule formulation has a number of characteristics that make it a useful input into the policy - setting process. first, it very explicitly focuses on the two parameters – the long - term inflation objective and the level of potential output consistent with that objective – that map directly to the federal reserve ’ s dual mandate objectives. second, standard taylor rules are self - equilibrating. they respond to economic shocks and forecast errors in a way that pushes the economy back toward the central bank ’ s objectives. third, academic research shows that taylor - type rules typically perform quite well across a wide range of economic models. this is important because we want rules that are robust ; that is, not overly sensitive to model - specific assumptions about how the economy performs or how households and businesses alter

timothy f geithner : the fed challenge remarks by mr timothy f geithner, president and chief executive officer of the federal reserve bank of new york, at the national academy foundation ’ s 2004 dinner, new york, 8 december 2004. * * * thank you, gene, for that generous introduction. it is a pleasure to be here tonight to celebrate the national academy foundation and all of your contributions to this important mission. i am very pleased to accept this award on behalf of the federal reserve bank of new york. i want to compliment sandy weill on his commitment to education and the achievements of the naf. and i want to recognize three important people from the new york fed who are responsible for the fed challenge : steve malin, lloyd bromberg and bob diamant. among these and other contributions to public service, sandy serves as a member of the board of directors of the new york fed. i want to tell you his reaction to a presentation early this year on our work in financial education. sandy listened carefully to the description of the full array of new york fed programs. then, in his typically tentative and understated way, with the same soft approach he brought to building one of the most formidable financial institutions in the world, asked why the bank didn ’ t limit its role in education to simply supporting the national academy foundation. his belief, with justifiable pride in the foundation, was that there was no more important contribution the fed could make and no more competent institution engaged in this effort than the foundation. fortunately for the new york fed, we have a long and productive collaboration with the foundation. we provide support on curriculum design and professional development. we are working together to help create a new high school in the city with a finance theme. the naf has adopted the fed challenge for its academies throughout the country. and we benefit in turn by using the academy ’ s work as a model for the economic and financial programs we support and initiate. if you care about the economic future of america, you have to care about educational reform and the mission of the naf. this mission has always been important, but it is particularly important today. confidence in america depends importantly on success in the education mission. improving educational achievement will play a critical role in generating the innovations necessary to drive future productivity growth. and yet, us students remain math challenged, and we are awarding a diminishing share of the world ’ s phds in science and engineering. improving the quality