Central bankers are steering the economy without the benefit of a reliable theory of what drives inflation, a former top Federal Reserve policymaker said, as he called for policymakers to pay less attention to theoretical models and more to actual data.

Daniel Tarullo, who left the US central bank’s board of governors earlier this year, said economists displayed a paradoxical faith in the usefulness of unobservable concepts such as the natural rate of unemployment or neutral real rate of interest, even as they expressed doubts about how robust those concepts were.

He was particularly doubtful about the weight inflation expectations play in rate-setting policy, given the “range and depth of unanswered questions” about how they are formed and measured.

“The substantive point is that we do not, at present, have a theory of inflation dynamics that works sufficiently well to be of use for the business of real-time monetary policymaking,” said Mr Tarullo in a speech at the Brookings think-tank in Washington.

Mr Tarullo’s intervention comes as the Federal Reserve grapples with unexpectedly soft inflation that has failed to operate in accordance with traditional models. The so-called Phillips Curve indicates that falling unemployment should stoke up higher wages and prices, but this year core inflation has instead softened.

Janet Yellen has been counting on low joblessness to fuel an acceleration of price growth as she justifies a gradual series of interest-rate increases. In a speech late last month, the Fed chair acknowledged there are many uncertainties clouding the central bank’s assessment of inflation, however, adding that “downward pressures on inflation could prove to be unexpectedly persistent”.

Mr Tarullo said that given the doubts swirling around unobservable economic concepts that are meant to be relevant to the inflation outlook, it made more sense to pay attention to “observables”.

That has meant focusing on actual inflation, which has been steadfastly sluggish. “With the risks of a rapid acceleration of inflation seemingly quite small, with interest rates still relatively close to the zero lower bound, and with observed inflation still not rising closer to target, erring a bit on the side of caution in the pace of rate increases continues to be the right policy,” he said.

This meant not making heavy use of monetary policy rules to guide rate-setting, given these rely on unobservable factors such as the neutral rate of interest and the output gap. Some conservative lawmakers have been calling for the Fed to pay greater heed to monetary policy rules, something the board itself has been fervently resisting.

“Monetary policy will need to confront the likelihood that we may be in for an indefinite period in which no Phillips Curve or other model will be a workable guide to policy,” Mr Tarullo explained.

The Fed will benefit from having one or two voices from outside the realm of macroeconomics to provide a fresh perspective on topics such as the drivers of inflation, said Mr Tarullo, a former lawyer who focused on financial regulation. Nevertheless, the weight of the Fed’s rate-setting committee should remain with those “long immersed” in monetary policy, even if they are not in thrall to models.

Mr Tarullo’s latter recommendation comes as US President Donald Trump considers a range of candidates not only for Fed chair but to serve in the board of governors, which is facing a number of vacancies.

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