Does The Fed Use Contrarian Methods To Enhance Its Credibility?

Abstract

Included in the Federal Reserve1s semiannual reports to Congress are both monetary targets and projections of several economic variables. Assuming that the Fed determines the monetary targets to be consistent with its projections, to enhance its credibility it would attempt to have the money supply stay within the boundaries of its announced growth path whenever the economic variables lie in the projected ranges. If setting the money supply Within the announced target range proves to be inconsistent with the projections, the Fed may choose to enhance its credibility by intentiona11y moving the money supply outside of its target range in an attempt to move the economy closer to the projected values of the economic variables. (E52, E52, E58)