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Time for the Fed to join the computer age

Summary:
When I was young, you’d still see stock prices such as 47 1/4 and 38 5/8. That was a throwback to the pre-computer age, when prices were calculated as a fraction of a dollar. Now everything from stock prices to T-bill yields is expressed in decimals, aka basis points. I’ve been arguing that the Fed should join the computer age, setting the fed funds target once a day at the median vote of the FOMC. Every working day, each FOMC voting member would email in their preferred policy rate, to the nearest basis point, and that day’s policy rate would be set at the median vote. No more agonizing between quarter point and half point changes. Under this system we would not see the sort of clown show experienced yesterday at the New York Fed. When will the Fed join the 21st century?

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When I was young, you’d still see stock prices such as 47 1/4 and 38 5/8. That was a throwback to the pre-computer age, when prices were calculated as a fraction of a dollar. Now everything from stock prices to T-bill yields is expressed in decimals, aka basis points.

I’ve been arguing that the Fed should join the computer age, setting the fed funds target once a day at the median vote of the FOMC. Every working day, each FOMC voting member would email in their preferred policy rate, to the nearest basis point, and that day’s policy rate would be set at the median vote. No more agonizing between quarter point and half point changes.

Under this system we would not see the sort of clown show experienced yesterday at the New York Fed.

When will the Fed join the 21st century?

PS.  Market monetarism, market environmentalism, it’s all good.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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