The Federal Funds Rate

Summary of Remarks made by Governor Edward M. Gramlich The Samuelson Lecture, before the 24th Annual Conference of the Eastern Economic Association, New York, New York February 27, 1998 In this speech Governor Gramlich addresses the issues that arise when the question of whether the Federal Reserve Board should use rules in the conduct of monetary policy is contemplated. He tells how the Fed once based policies on monetary aggregates and that now many suggest they base …

…equilibrium funds rate, the Fed must determuine the real federal funds rate, even if inflation and output are on target. Because of these uncertainties it is very difficult to determine which of the policies is the best. Rule making may become so advanced that monetary rules may become useful in the conduct of monetary policy. For now, they will continue to help guide policy makers to avoid large mistakes that will effect the whole country.