Policymakers tie themselves to the mast of this rule or criterion, sacrificing some of their short-run freedom of action in order to achieve what they hope will be superior outcomes over the long term. In monetary policy, commitment can in theory reduce the risk of future recession and more tightly control medium-horizon inflation expectations at the cost of a somewhat poorer near-term inflation or unemployment performance. Commitments come in lots of different flavors and styles, and forward guidance isn’t necessarily helpful or wise just because it’s Odyssean. Tying yourself to the mast isn’t an especially good idea if your ship is sinking, or if enemy forces are directing fire toward your deck. Committing to a particular path for the funds rate, or to a time schedule for funds-rate liftoff, is not something in which I or many of my colleagues have any interest. Commitments that are contingent on future economic conditions, in contrast, enjoy at least some support on the FOMC. President (Narayana) Kocherlakota of the Minneapolis Fed, for example, has notably proposed that the committee promise to delay liftoff at least until either the unemployment rate reaches 5 1/2 percent or forecasted inflation hits 2 1/4 percent (provided longer-term inflation expectations remain well-anchored, and possible risks to financial stability remain well-contained). My own view is that commitments aren’t always credible, especially if they purport to extend far into the future. It’s hard to bind future policymakers, and it’s difficult to anticipate all the various economic circumstances that might arise down the road.
On asset purchases: “If incoming information broadly supports the committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the committee will likely reduce the pace of asset purchases in further measured steps ...” On the timing of liftoff: “The committee continues to anticipate ... that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends ...” On the post-liftoff path of the funds rate: “The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run.” As a former practitioner, I can tell you that market operators prefer Odyssean guidance to Delphic guidance, and within the Odyssean model, tend to prefer inflexible, calendar-based guidance to guidance that’s either conditional or qualitative. Life in my former incarnation would naturally be much more pleasant if I could dial in the specific dates and levels of interest rate movements. But as a central banker, I am haunted by a comment made by Winston Churchill in 1926, shortly before things began to unravel in the global financial  4  BIS central bankers’ speeches  markets.