Blog: Monetary Policy - Ballistic vs. Gradualist Behavior
The Logic of Failure.
The Fed has been under pressure from many sides. While inflation is stubbornly above the Fed target of 2%, employment seems soft. Those concerned about employment think the Fed should reduce interest rates. Others think rates should go up to fight inflation. Many think the moves should be rapid to head off a result they believe is inevitable. Since Alan Greenspan was Chairman, the Fed has favored a gradualist approach. While alarmists think that's a "too late" strategy. research on complex decision making supports the gradualist method when faced with this type of uncertainty.
One of my favorite, little known books, The Logic of Failure by Dietrich Dorner, shows the benefits of gradualism using experiments with (not on) real people.