Fed's Stein suggests tapering rule to add clarity to central bank decisions

Federal Reserve board member Jeremy Stein has a nifty solution to the lack of clarity over the central bank's decisions to begin tapering. That's fedspeak for reducing the rate of expansion of the monetary base.

He's proposed that asset purchases be scaled back by a fixed amount for each 10 basis point drop in the US unemployment rate.

What is much more important is doing everything we can to ensure that this difficult transition is implemented in as transparent and predictable a manner as possible. On this front, I think it is safe to say that there may be room for improvement.

Ben Southwood, head of macro policy, Adam Smith Institute:

Stein's comments are very sensible, and go in the absolute right direction—toward a more rule-based monetary policy.

Policymakers tend to believe that only their discretion can save economies and financial systems, but rules are better both for preventing crashes and recessions and for giving economies the oomph needed to recover from them.

A credible rule-based monetary policy in the USA could resolve what's left of the demand-side issues the Fed allowed to develop in the initial stages of the crisis. This allows the government to focus on shedding supply-side barriers to enhance the US's long term growth.