1:46 PM » Fed's Evans, Plosser clash over rate policy rules
WASHINGTON (MarketWatch) -- Two influential Federal Reserve officials clashed on Friday over whether the central bank should follow simple policy rules in the future or use more discretion. Charles Evans, the president of the Chicago Federal Reserve Bank, said the leading monetary policy rule, known as the Taylor rule, was "an absolute failure" for not indicating how the Fed should respond once short-term interest rates hit zero in December 2008. "If a policy rule is sturdy, the test of its structural foundation comes when a hurricane or earthquake hits," Evans said. Evans said 90% of the Fed's communication challenge is met by stressing its goals of 2% inflation and full employment. On the other hand, Charles Plosser, the president of the Philadelphia regional Fed bank, said that the central bank had to have a "reaction function" if it wanted to use forward guidance as a tool. "The desire to maintain discretion is anathema to the commitment required for successful forward guidance," Plosser said. They made their comments at a forum hosted by the University of Chicago Booth School of Business in New York.