Federal Reserve Philosophies – Then And Now

On Monday, February 13, John C. Williams, President and CEO, Federal Reserve Bank of San Francisco, gave a speech titled “The Federal Reserve’s Mandate and Best Practice Monetary Policy.”

Although I don’t agree with many aspects of the speech, I found various aspects to be notable.  I would like to highlight one excerpt in particular, as I find it highly memorable and an iconic quote of the period:

With regard to both of the Fed’s mandates, it’s vital that we keep the monetary policy throttle wide open.

I think it is interesting to compare this excerpt to a famous quote by William McChesney Martin, who was Chairman of The Federal Reserve from 1951-1970; Martin declared that the Federal Reserve’s role was “to take away the punch bowl just as the party gets going.”


Another notable excerpt from Williams’ speech of Monday I would like to highlight as highly significant, especially the second paragraph, which concludes the speech :

We have pushed the federal funds rate close to zero because of the severe recession of 2007 through 2009, and the weak recovery since. We’ve said we expect to keep the federal funds rate extremely low at least through late 2014. Meanwhile, with the fed funds rate near zero, we’ve used some unconventional monetary policy tools to try to push down longer-term interest rates further. Our policy initiatives are a major reason why interest rates across the entire yield curve are at or near record low levels for the post-World War II period.

This is truly an extraordinary time for monetary policy. I’ve talked about some of the tradeoffs central bankers face. But I don’t see such tradeoffs today. Now is one of those moments when everything points in the same direction. The Fed is committed to achieving maximum employment and price stability. And we’re doing everything in our power to move towards those goals. Thank you very much.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1358.04 as this post is written