Monetary policy strategy As I noted at the outset of my talk, the federal funds rate is quite low: It is low relative to interest rates associated in the past with sustained high employment and stable prices; and it is low relative to recent rates of economic growth - a disparity that has attracted increasing attention from some observers.
In the early 1970s, Robert Lucas expanded on the ideas of Friedman and Phelps and noted that shifts in the way a central bank conducts monetary policy imply changes in the way the public forms its expectations. Over the past thirty years, economists have taken these observations to heart in trying to explain the behavior of overall inflation.