tonight i ’ ll focus on one of the most important : monetary policy. eight times per year, the federal open market committee – the fomc – meets to set the path of interest rates over the next six to seven weeks. all 12 presidents of the various regional federal reserve banks – including me – and the governors of the federal reserve board participate in these meetings. how does its regional structure help the federal reserve system make better monetary policy? the answer lies in the nature of the regional bank presidents ’ contributions during fomc meetings. during the course of the meetings, the presidents typically comment on the behavior of their district economies – in my case, the economies of the six states that make up the ninth district. this region - specific information helps to provide a granular, more forward - looking foundation for the making of national monetary policy. bis central bankers ’ speeches where do the presidents get this region - specific information? there are many answers to this question. but we are especially indebted to the members of our boards of directors and advisory councils, who use their extensive contacts in the local community to provide us with valuable economic intelligence. the reserve banks know that our district economies are all complex systems, and so we need “ intel ” from a wide range of perspectives. accordingly, the reserve banks work hard to ensure that the members of our boards and advisory councils come from many walks of life – farming, banking, fortune 500 companies, nonprofits, labor unions and start - ups to name but a few – and many parts of our districts. so, the 12 presidents contribute to monetary policy deliberations by providing local economic intelligence about their districts. but the presidents also often make comments about economic research being done within their banks that helps shed light on national economic conditions. hence, the geographic diversity within the system is important for another reason : it generates valuable intellectual diversity across the system. for example, back in the 1970s, the minneapolis fed research department played a key role in fostering the “ rational expectations revolution ” that has helped transform the making of monetary policy around the world. i ’ d love to take a few hours to explain this important development in policymaking – but it ’ s a friday night. the relevant point is this : would these economists have played this same role had they been working in washington, or anywhere else in the system, for that matter? i believe that the answer to this question is no. the ideas in the research department were generated by synergistic

why would the fomc want to use price level targeting? there are two reasons – and they are closely related to the concerns about low inflation that i raised earlier. the first reason is that price level targeting makes long - term contracts safer for borrowers and lenders. for example, suppose a family took out a 30 - year mortgage in 2012, under the expectation that the fomc would deliver on its commitment to keep inflation at 2 percent. because inflation has been so low over the past two years, the borrower ’ s current repayments are now surprisingly expensive in real terms. ( by “ real terms, ” i mean that the borrower has to give up a surprising amount of goods and services to be able to afford the repayments. ) the fomc can ’ t solve that problem today, of course. but if the fomc uses inflation targeting, the borrower ’ s repayments are likely to remain surprisingly expensive in real terms even in 2042, 30 years after taking out the mortgage. in contrast, if the fomc uses price level targeting, the borrower ’ s repayments in 2042 are likely to be close, in real terms, to what the borrower expected when originally taking on the loan. the second reason that the fomc might want to use price level targeting is that it would serve as an automatic stabilizer for the economy. as i described earlier, when demand is low, inflation tends to be below target. with price level targeting, the fomc makes up for low inflation by using monetary policy to stimulate higher future inflation and higher future demand. but this prospect of higher future demand is an incentive for businesses to hire and invest more now. thus, with price level targeting, the fomc ’ s anticipated future policy choices automatically offset current adverse shocks. 1 i ’ ve framed the decision about inflation targeting versus price level targeting in terms of its impact on the fomc ’ s future policy decisions. as i ’ ve just talked through, though, these future decisions have the potential to affect near - term macroeconomic outcomes. in particular, if the fomc were to decide today to follow price level targeting, then businesses would anticipate more stimulative future monetary policy and, consequently, higher future demand. that expectation of higher demand would provide an additional incentive for them to hire and invest today. in this way, the fomc ’ s decision about price level targeting – a decision