Dear Congressman Paul Ryan,
In a recent speech you made the case for a more rules-based approach to monetary policy:
The Fed’s recent departures from rules-based monetary policy have increased economic uncertainty and endangered the central bank’s independence... Congress should end the Fed’s dual mandate and task the central bank instead with the single goal of long-run price stability. The Fed should also explicitly publish and follow a monetary rule as its means to achieve this goal.
I agree that we need a more systematic approach to monetary policy. The ad-hoc nature of the QEs adds uncertainty and makes the Fed a political lightning rod for criticism. Ultimately, this reduces the effectiveness of monetary policy. So, yes, we need a predictable, rules-based approach to monetary policy. We also need, however, an approach that responds appropriately to supply shocks. For example, we wouldn't want the Fed to follow a rule that would call for a tightening of monetary policy just because a major computer virus shut down most computer systems and, as a result, caused prices to go up. Instead, what we need is an approach to monetary policy that keeps the growth of total current dollar spending stable so that the booms and bust are minimized. The good news is there is a way for monetary policy to do this in a systematic manner. It is called nominal GDP level targeting. This approach would narrow the Fed's mandate to single measure and thus make it more accountable. I ask you to please consider this idea.
For further reading on nominal GDP level targeting I suggest you read this article, this article, and this article from the National Review.
All the best,