Reflections

My reflections on the new operating procedures that were adopted by the Federal Open Market Committee (FOMC) on October 6, 1979, derive from my responsibilities at the Federal Reserve Board at the time. Those responsibilities included preparation of the international component of the staff forecast, analysis of economic and financial developments in other countries, and assisting the Chairman and members of the Board (primarily Henry C. Wallich) with international responsibilities in connection witht heir attendance at international meetings. Therefore, mine was and is an international perspective. I was not involved in the design of the new operating procedures, although I was informed thatthe project was under way.

The decision on October 6, 1979, was very much part of an international policy coordination process that played out with our partners abroad, principally in Europe, as well as within the U.S.government, in the late 1970s. In thinking about such episodes of policy coordination, I find it useful to try to answer a sequence of questions: (i) Was the diagnosis of a need for policy action correct? (ii) Was there agreement on the modelor framework used to analyze the situation? (iii) Were the right policy choices made? My reflections are organized around those three questions. My answers are as follows: (i) Eventually the correct diagnosis was made. (ii) Agreement on the analytic framework was loose at best. (iii) The right choices were made, but in retrospect at a high price that probably would be higher today.