Here’s What the Fed’s Rate Should Be, Using Rule Footnoted in Yellen Speech

by Steve Goldstein
Market Watch

Federal Reserve Chairwoman Janet Yellen has fought against a notion put forward by some in Congress to follow a mathematical formula to determine interest rates.

That said, in her keynote speech in Jackson Hole, there’s a footnote that lays out exactly such a rule. She says this rule is more “aggressive” than the so-called Taylor Rule, put forward by Stanford professor John Taylor that many Republicans in Congress have supported.

“The more aggressive rule does a reasonably good job of accounting for movements in the federal funds rate in the decade prior to its falling to its effective lower bound in late 2008,” the footnote says. This formula is laid out in more detail in a little-noticed working paper published in August on the Federal Reserve’s website.

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