However, theoretical analyses have tended to show that, in models in which financial-market participants are assumed to be forward-looking, optimal monetary policies generally involve some degree of gradualism (Woodford, 2000, 2003). One advantage of the gradualist approach in this context is that it can provide a powerful lever on long-term rates with relatively modest volatility in short-term rates.
Less variable short-term rates reduce the risk that the policy rate will hit the zero lower bound on interest rates; they may also reduce stress in the financial system, as I will discuss shortly.