New York Fed President John C. Williams delivered the 4th Suresh Tendulkar Memorial Lecture at the Reserve Bank of India in Mumbai on July 5, 2024. In his remarks, he discussed the key principles of inflation targeting strategies that have proven foundational in helping the Fed and other central banks manage extreme uncertainty. These principles include the need for central banks to own the responsibility for price stability and have independence to act to achieve it; transparency and clear communication of goals, including an explicit numerical inflation target; and well-anchored inflation expectations.
He said:
“Today, regardless of economic shocks, changes in fiscal policy, or globalization and deglobalization swings, central banks recognize that attaining and maintaining price stability is their job to do.”
“For central banks, transparency enhances accountability and keeps them clearly focused on achieving their goals.”
“Central banks help anchor expectations by owning the responsibility to deliver price stability, publicly committing to an explicit inflation target, and taking the actions needed to ensure price stability.”
The onset of the pandemic, along with Russia’s war on Ukraine, sparked extraordinary shocks and extreme uncertainty that led inflation to skyrocket in economies around the world. Relying on the key principles of inflation targeting strategies has helped the Fed and central banks in many other countries move closer to their price stability goals, President Williams said.
While the principles provide a framework to manage shocks and uncertainty, “they are not meant to be overly prescriptive on tactics,” he said. “In monetary policy, it’s important to be nimble in execution even as one is steady in strategy.”
These tenets have served central banks well in facing uncertainty in the past, and “we must accept that uncertainty will continue to define the future,” President Williams said.
“These principles and lessons provide a strong foundation for monetary policy that is robust to uncertainty,” he said. “And I am confident they will continue to serve us well against any challenges and uncertainties we may face ahead.”
Judy DeHaven is an executive communications specialist at the New York Fed.
The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
