intermediate targets of monetary policy

Although the Federal Reserve could, in principal, conduct open-market operations, vary the discount rate, or adjust reserve requirements with an aim to achieve its output and inflation objectives directly, it rarely has done this. Instead, the Fed typically as used intermediate targets of monetary policy. An intermediate target is an economic variable whose value the Fed chooses to control because it feels that doing so is consistent with its ultimate objectives. That is, an intermediate target is an objective distinguishable from the Fed is ultimate output and inflation goals- and one the Fed would not wish to control by itself- but closely enough linked to its ultimate goals that the intermediate target can serve as a "stand-in" or "proxy" for the ultimate objectives of its policies.
As we shall discuss shortly, there are a variety of variables that the Fed might consider as possible intermediate targets. In fact, conceivably there is almost no limit to the listing of economic variables from which the Fed might select an intermediate target of its policies. For instance, the Fed might decide to buy or sell college textbook in a sufficient quantity to keep the average price of a textbook at a fixed, target level. It probably would not ever do this, however, because it is unlikely that college textbook will ever bear a close enough relationship to aggregate economic activity to justify Fed involvement in that market.
The need for a potential intermediate target to be closely related to the Fed is ultimate goals, then, stands out as a key element in limiting the set of variables that the Fed might consider as a possible intermediate target variable. Nevertheless, several economic variables still remain on the Fed is list of candidates, as we shall discuss below. First, however , we need to consider why the Fed might wish to use an intermediate target in the first place.