Last week, William Dudley, president of the Federal Reserve Bank of New York, was widely quoted as saying that the case for a September interest rate increase has grown “less compelling,” apparently as a consequence of turmoil in stock markets around the world. Is Dudley saying that monetary policy is dependent on the stock market?
“Data dependence” has become a mantra of Federal Open Market Committee (FOMC) policy discussion. For example, Chairwoman Janet Yellen’s statement at her June press conference says, “…although policy will be data dependent….”

It is long past time for the FOMC to make sense of what it means by “data dependence.” Dudley is not the first FOMC participant to react to events in a way that continues to muddle communication of policy strategy.
Early in my tenure as St. Louis Fed president, I gave a speech entitled “Data Dependence,” and across the years I tried to convey a sense of what this term ought to mean. The FOMC’s setting of the federal funds rate should depend in a predictable, systematic way on data available at the time of each FOMC meeting.