There is general agreement that price stability is necessary for macroeconomic success and that only monetary policy can achieve price stability. The Fed has been successful in this respect over the past twenty-two years. However, there is disagreement on whether monetary policy can do more. Future potential is limited by both the quality of data and the state of economic science. However, past success has created the irony that – while there is recognition that monetary policy is a blunt instrument – there are calls for the Fed to use it with surgical precision. A realistic appraisal of the potential for monetary policy suggests that persistent, incremental action – rather than aggressive attempts at fine-tuning – is the right direction for achieving an environment for maximum sustainable economic growth.
