[Related to the Chapter Opener on page 546] In an article titled The Strategy of Monetary Policy, Professor Alan Blinder, then Vice Chairman of the

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[Related to the Chapter Opener on page 546]

In an article titled “The Strategy of Monetary Policy,” Professor Alan Blinder, then Vice Chairman of the Board of Governors of the Federal

.Reserve System, asked the following rhetorical questions:
Why don’t we [the Fed] just wait and see what happens? If inflation starts rising, hit the economy with higher interest rates. If unemployment starts rising, do the reverse.
I [Professor Blinder] call this the Bunker Hill [a reference to the Revolutionary War battle during the siege of Boston] strategy: Wait until you see the whites of their eyes and then fire. Why don’t we do that?
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a. In essence, why can’t the Fed use what Blinder calls the Bunker Hill strategy?

b. Why does the Federal Reserve need reasonably accurate forecasts of the economy to pursue and achieve successful monetary policy?