14  The idea of robust control is that when making decisions, one should take into account that the models being used to guide one’s decisions may be wrong. For discussions of robust control and what it might imply about the conduct of macroeconomic policy in various scenarios, see Hansen and Sargent (2008, 2014). BIS central bankers’ speeches  5  How do I think policy should balance these divergent risks? How should these risks affect my views about how to follow the FOMC strategy of pursuing a balanced approach to achieving our policy goals? In my mind, current circumstances and a weighing of alternative risks mean that a balanced policy approach calls for being patient in reducing accommodation – that is, being patient about when we first increase the federal funds rate and being patient about setting the pace of rate increases once we have begun to move. I know from the NABE Economic Policy Survey that many of you disagree with this view. 15 Let me explain how I get there. Proceed cautiously in normalizing policy To say the least, conducting monetary policy at the ZLB has been a difficult experience that we all want to avoid repeating unnecessarily. In the winter of 2009, with the unemployment rate soaring to double digits, the Fed would have very much liked to lower the nominal federal funds rate an additional 300 basis points; but we couldn’t because the rate was already at zero.
8  BIS central bankers’ speeches  To summarize, I am very uncomfortable with calls to raise our policy rate sooner than later. I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals. And I think we should plan for our path of policy rate increases to be shallow in order to be sure that the economy’s momentum is sustainable in the presence of less accommodative financial conditions. I look forward to the day when we can return to business-as-usual monetary policy, but that time has not yet arrived. References Aaronson, Daniel, Luojia Hu, Arian Seifoddini and Daniel G. Sullivan, 2014, “Estimating and forecasting trend labor force participation,” Economic Perspectives, Federal Reserve Bank of Chicago, Vol. 38, forthcoming. Aaronson, Daniel, and Andrew Jordan, 2014, “Understanding the relationship between real wage growth and labor market conditions(pdf),” Chicago Fed Letter, Federal Reserve Bank of Chicago, No. 327, October. Aaronson, Daniel, and Daniel G. Sullivan, 2001, “Growth in worker quality(pdf),” Economic Perspectives, Federal Reserve Bank of Chicago, Vol. 25, Fourth Quarter, pp. 53–74. Acemoglu, Daron, and David H. Autor, 2011, “Skills, tasks and technologies: Implications for employment and earnings,” in Handbook of Labor Economics, Orley Ashenfelter and David Card (eds. ), Vol. 4B, Amsterdam: Elsevier / North-Holland, pp. 1043–1171. Autor, David H., 2011, “The unsustainable rise of the disability rolls in the United States: Causes, consequences, and policy options,” National Bureau of Economic Research, working paper, No. 17697, December.