Selecting Monetary Targets in a Changing Financial Environment,” in Monetary Policy Issues in the I 980s, a symposium sponsored by the Federal Reserve Bank ot Kansas City (August 9 and 10

Abstract

In the years since the Accord, the worlds of financial-intermediary competition and Federal Reserve policymaking have changed in many ways. But an awakening Rip Van Winkle would find one thing unal-tered: the Fed's steady adherence to a policymaking strategy of inter-mediate targeting.. Such a strategy has three basic elements: policy instruments, inter-mediate policy targets, and policy goals. In principle, policy instru-ments are variables that the Fed controls absolutely, while policy goals are socially desirable developments that Fed officials are statutorily assigned to promote. Fed goals relate to various dimensions of good macroeconomic performance: low unemployment, price stability, a strong dollar, sustainable economic growth, and an improved distribu-tion of income. The Fed's major macroeconomic instruments are reserve requirements, discount procedures, and securities transactions, but it controls a host of supplementary (and less broadly focused) instruments. These include regulation of deposit terms (shared sinc