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Vol. 61, No. 4
Posted 1980-04-01

Monetary Policy for the 1980s

by Lawrence Roos

Lawrence K. Roos, president of the Federal Reserve Bank of St. Louis, describes what he termed the “shortcomings” of the past monetary policy actions and announces his enthusiastic support for the Feds recently announced change in the method by which future monetary policy will be conducted. Although the new policy approach, which places primary emphasis on the growth of reserves and monetary aggregates, holds the promise of avoiding the policy errors of the past, Roos cautions that there are several steps which must be taken if the policy change is to fully achieve its desired results. Among the necessary steps are increased focus on the growth in the monetary base, the avoidance of monetary policy surprises, and a commitment to a long-run policy viewpoint so that neither political pressures nor false expectations force abandonment of the new policy. He emphasized that the new policy must be given at least a year to prove its value and should not be expected to dissipate inflation in a matter of months.