James Bullard, president of the St. Louis Federal Reserve Bank, is worried about falling into a “trap” in which deflation remains a danger and interest rates remain low for an extended period of time. To avoid that trap, he said in a speech today in Switzerland, the Fed needs a new policy rule that makes clear how it’s going to respond to the situation. Here’s why:

In short, good policy means that the Fed needs to communicate to the private sector how it intends to react to shocks in the future. Before December 2008, the Fed was able to communicate future monetary policy because the likely path of interest rate adjustment was relatively well understood. With nominal interest rates currently at zero, the Fed has lost this ability to communicate future policy.

The Fed should consider a quantitative rule, one based on measurement of the money supply, Bullard says:

We have spent 20 years refining ideas about interest rate rules and optimal monetary policy. We should consider quantitative rules because we are at the zero bound and may remain there for some time, depending on how the economy performs. Quantitative rules are generally not as satisfactory as interest rate rules. But it is still worthwhile to use them because of the need to communicate future monetary policy to markets.

Bullard flashed plenty of mathematical equations at his audience, at a Swiss National Bank research conference. But this stuff has real-world implications, he emphasized, citing evidence that quantitative policy rules could have prevented both the Great Depression and Japan’s “lost decade” during the 1990s.