18 The idea that monetary policy should react in a systematic manner in order to blunt the effects of shocks has remained central in the FOMC’s policymaking during this recovery. However, the application of this idea has been more challenging.
With the federal funds rate pinned near zero, the FOMC has been forced to rely on two less familiar policy tools – the first one being forward guidance regarding the future setting of the federal funds rate and the second being large-scale asset purchases. There are no time-tested guidelines for how these tools should be adjusted in response to changes in the outlook.