MNI POLICY: Fed's Williams: Framework Review to Address ZLB

By Jean Yung

     WASHINGTON (MNI) - The conduct of monetary policy after lowering interest

rates to zero is a key challenge for the Federal Reserve as it prepares to

review its strategic framework this year, New York Fed President John Williams

said Friday.

     "With estimates of the neutral real interest rate much lower than those

that prevailed 20 years ago, the (zero lower bound) is likely to be an even more

powerful force than was imagined in 1999," he said in remarks prepared for a

conference at the New York Fed. 

     Some of the tools the Fed used in the Great Recession trace their roots to

a key conference from 20 years ago, Williams noted. The research had important

practical lessons for the Fed, including the use of quantitative easing, and

that short-term rates should be cut aggressively when deflation or a severe

downturn threatens and kept "lower for longer" as the economy recovers.  

     The Fed is set to hold an academic conference reviewing its framework next

week in Chicago. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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