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A Hard Lesson for the Fed: New Tools for Managing Inflation in an Era of Price-Stability

Traders Magazine, July 2004

Kathryn M. Welling

Paul McCulley, Pimco's very own monetary maestro, has been flying around the globe lately, telling gatherings of central bankers to get with the new paradigm. And to get re-armed. In June, the Fed raised its target for the Federal Funds rate by one quarter of one percent. The war against secular inflation clearly has been won, Paul says, but this is no time for the monetary authorities to relax. -KMW There's an ugly rumor going round that you recently gave a speech in Switzerland asking the Fed to lay more rules on the markets-What I am trying to do these days is be the first to lay out the parameters of this new world the Fed is operating in. They have to cyclically respond to inflation. But in the context of trying to win the peace of price stability, as opposed to the way they operated during the long war against inflation. I would like to have some sense of what policymakers' regularities are going to be.

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