In the 1970s, the SOMC promoted the idea that high inflation was a monetary phenomenon and not caused by an eclectic array of factors which was the consensus view. The SOMC’s minority vision gained traction and influenced the policy debate. As monetary policy issues have evolved over the half-century, the SOMC and members’ research have broadened in scope and continued to influence the policy debate.

The SOMC emphasizes sound monetary policy, highlighting the economic benefits of a rules-based monetary policy rather than a discretionary approach, and full central bank transparency and accountability. On fiscal policy matters, the SOMC has urged fiscal restraint and the importance of the Fed to steer clear of fiscal policy and its involvement through its balance sheet policy.

The range of the SOMC’s expertise has broadened as the scope of the Fed and global central banks has expanded. SOMC members include three former Fed members and noted academics with expertise in banking and banking regulation, financial stability, the Fed’s expanded balance sheet, its role in international finance, monetary history, and governance issues. This enhances the Committee’s ability to provide sound, constructive advice to policy makers.

Core Beliefs

Statement of the Shadow Open Market Committee’s Core Beliefs established in 2015

  1. The SOMC takes for granted that U.S. monetary policy will be conducted by the Fed over the foreseeable future.
  2. It is essential that the central bank be independent from the fiscal authorities and accountable to the legislature.  In particular, the central bank should eschew policies that allocate credit.
  3. Price stability is the best contribution that monetary policy can make to overall macroeconomic performance and for this reason should be the primary objective of the central bank. “Price stability” should be defined to insure that the inflation rate, on average, is not above 2 percent per year.
  4. Monetary policy should be conducted in a rule-like manner and be somewhat countercyclical with respect to output and employment, as long as price stability of the long run is not compromised.  We expect the central bank to announce the policy rule that it follows so that it can be monitored and held accountable.
  5. To provide financial stability, the central bank should promote strong capital buffers.
  6. The SOMC expects the central bank will serve as a lender of last resort.  In this role:
    1. The central bank should state its lender of last resort rules clearly in advance.
    2. Such activities should be limited to occasional, temporary well-collateralized lending to solvent, supervised depository institutions at an appropriate interest rate premium.
    3. More expansive lending should be agreed and indemnified in advance by the fiscal authorities.
  7. The SOMC believes that, by following these basic principles, the Fed would create the monetary and financial framework that best facilitates the efficient functioning of free-market, prosperity-creating, institutions in the U.S. economy.