How farsighted is the FOMC?
Geoffrey Tootell ()
New England Economic Review, 1997, issue jan, 49-65
The most difficult problem facing monetary policymakers results from the long and variable lags in monetary policy's impact on the economy. The full effect of an interest rate change today is not realized for several quarters, so monetary policymakers must be forward-looking. Yet, it is difficult enough to interpret how the economy is doing now, let alone forecast how it will be performing one year hence. This uncertainty hinders the ability of policymakers to offset future fluctuations with current actions. Even so, the lags leave central bankers no choice but to react to their expectations about the future.> This article examines the extent to which the Federal Open Market Committee (FOMC) reacts to forward-looking data. It is shown that the FOMC does look into the future, basing its decisions on expectations about the economy at least as far as a year away. The effects of forecast uncertainty on the farsightedness of the FOMC are also analyzed. It is found that the FOMC's reaction depends on the relative uncertainty across forecast horizons, which can change over time.
Keywords: Federal; Open; Market; Committee (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbne:y:1997:i:jan:p:49-65
Ordering information: This journal article can be ordered from
Access Statistics for this article
More articles in New England Economic Review from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().