In a provocative speech this week, Charles I. Plosser, the president of the Federal Reserve Bank of Philadelphia, proposed a new approach for the Federal Reserve System. The Fed, he said, should focus only on controlling inflation, strictly limit the assets it buys, follow a more rules-based approach to setting interest rates and place binding constraints on its emergency lending activities.
Of course, this is not so much a new set of ideas as an attempt to return to a much more traditional perspective on how the Fed should operate – not back to the pre-1930s gold standard, but perhaps back to the early days of Fed independence in the 1950s.
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