fedOn Jan. 22, the Bernanke Fed broke with its, and the Greenspan Fed’s, past of moving gradually in predominantly 25 basis point, or quarter percentage point, rate moves by delivering a 75 basis point rate cut followed by 50 basis points nine days later.

Vincent Reinhart, a scholar at the American Enterprise Institute and, until last fall, a senior staffer at the Fed who helped advise on such decisions, thinks this signals a shift in how the Fed executes monetary policy.

“Will post-gradualism be the new black in central banking?” he asked a luncheon audience at the Monetary Policy Forum, a joint academic-Wall Street research conference in New York, Friday.

Despite the midtown Manhattan locale, Mr. Reinhart, who in his Fed days was known, by central bank standards, for his urbane attire and haircut, got only scattered chuckles from the audience of economists, Fed officials and academics. “This crew doesn’t get out a lot,” he muttered.

Gradualism — moving to your preferred level of interest rate in steps rather than all at once — has been established Fed practice for years. If it thought it had to cut rates 150 basis points (1.5 percentage points), it would be better to do it in a mix of 25 and 50 basis point moves than all at once. It’s based on the notion, first articulated by Yale University’s William Brainard, that you can never have complete certainty that your target interest rate level is, with the passage of time, going to be the right one, or how your rate moves will actually affect the economy. So going there in steps preserves the option of stopping if events differ from expectations.

But last fall the Fed appeared to break with that tradition, moving rates down swiftly then signaling it was done, arguing that even weak economic data shouldn’t require additional cuts since they were factored into the decision to make the prior cuts. Cutting in anticipation of weak data and then again on the arrival of such data would be double counting.

January’s 125 basis points of cuts in nine days took post-gradualism to a new level. “At an annual rate, that does add up,” Mr. Reinhart noted.

The problem with post gradualism is that Wall Street still operates in a gradualist era and assumes that one cut of a given size will probably be followed by another — they don’t assume the same end point has simply been reached sooner. Even after January’s 125 basis points of cuts, futures markets expect another 50 to 75 at the March 18 meeting. That has hamstrung the Fed when it has tried to convey an end to its tightening.’

But an alternative interpretation is that the Fed hasn’t changed regimes; rather, the economic drivers of its rate decisions are different from previous episodes. Thus, it will return to gradualism when the economic outlook also becomes less fluid.

Mr. Reinhart warns that if the Fed is in a new regime, it will have to be symmetric: aggressive rate cuts will have to be followed by aggressive rate increases to extinguish emerging inflationary flames.

“When insurance [against recession] proves to be no longer necessary, removing it promptly and recalibrating policy to appropriate levels will reiterate and reinforce our commitment to” price stability, Chicago Fed President Charles Evans told the same group. –Greg Ip