If Wayne Gretzky Were A Central Banker …

Throughout the financial crisis, central bank officials have invoked all sorts of metaphors - often involving weather - to relate monetary policy to the public. Federal Reserve Bank of Philadelphia President Charles Plosser upped the ante Tuesday, using a reference to upstate New York winters to break into a discussion of hockey star Wayne Gretzky. “I found that hockey players could teach us things that are relevant and useful in other disciplines, including, believe it or not, monetary policy,” he said in a speech in Rochester, N.Y.

If your first thought was “not,” Mr. Plosser has some words for you. Excerpts from his speech:

Hockey great Wayne Gretzky was once asked about his success on the ice. He responded by saying, “I skate to where the puck is going to be, not to where it has been.” He didn't chase the puck. Instead, Gretzky wanted his hockey stick to be where the puck would be going next. He scored many goals with that strategy, and I believe monetary policymakers can better achieve their goals, too, if they follow the Gretzky strategy.

Good monetary policymakers, like good hockey players, must be forward-looking in their actions. Setting policy that is appropriate for where the economy is today, or has recently been, is not likely to deliver the kind of economic outcomes we desire. … Gretzky, like all great hockey players, excelled, in part, because of his ability to anticipate. That does not mean he always anticipated accurately. Sometimes his forecast turned out to be wrong and the puck went in another direction. But that does not mean that his strategy was wrong, only that his execution needed improvement. The more you understand the game or the economy, the better your forecasts will be. Monetary policymakers similarly must be forward-looking despite the difficulties, uncertainties, and challenges that entails.

… Wayne Gretzky emphasized that anticipation was important to being a successful hockey player. Failing to anticipate in hockey means that you always end up chasing the puck and never catching it. Since monetary policy works with a lag, policymakers must also anticipate and be forward-looking in their actions. Failing to do so would mean that policy would always be behind the curve - playing catch-up so to speak. The result would be greater instability in the economy and a failure to achieve our policy objectives.

Taking forward-looking policy actions is not an easy task. There are many real interest rates; they are not easily observed or measured; and they can be quite volatile. Thus, judging the appropriate response of policy at any point in time is fraught with challenges. We must assess what the current data and market interest rates are telling us about the future. But no one said hockey was easy either. Wayne Gretzky was not the fastest, nor the biggest, of hockey players, but no one was as gifted as he was in looking ahead and anticipating where the puck would be, which is why he is known as the Great Gretzky.

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