Conclusion
All of the guides to monetary policy discussed here have something to
do with the transmission of monetary policy to the economy. All have certain
advantages, however, none has shown so consistently close a relationship with
the ultimate goals of monetary policy that it can be relied on alone.
Consequently, monetary policy makers have tended to use a broad range of
indicators including those mentioned above along with many others, like the actual
behavior of output and prices, to judge trends in the economy and to assess the
stance of monetary policy.
Such an eclectic approach enables the Federal Reserve and other central
banks to use all the available information in conducting monetary policy. This
tack may be especially important as market structures and economic processes
change in ways that reduce the utility of any single indictor. However, a
downside to such an approach is the difficulty it poses in communicating the
central bank’s intentions to the public; the lack of a relatively simple set of
procedures may make it difficult for the public to understand the actions of the
Federal Reserve and to judge whether those actions are consistent with achieving
its statutory goals. This downside risk can be mitigated if the central bank
develops a track record of achieving favorable policy outcomes when no single
guide to policy has proven reliable.