Researchers Edmund Crawley, William Goodwin, Margaret M. Jacobson, and Fabian Winkler have published a paper in the Federal Reserve’s Finance and Economics Discussion Series (FEDS) that proposes a double‑inertial rule for setting the federal funds rate. The new rule expands on the standard inertial Taylor rule by also smoothing the pace at which the policy rate changes. Empirical tests show the double‑inertial rule explains more than twice the variation in federal funds rate changes compared with the conventional inertial rule. The authors argue that this improvement makes the double‑inertial rule a useful tool for describing U.S. monetary policy and suggest practitioners should consider it when analyzing policy gradualism.
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