Communication policy is a powerful tool for the Fed, but it's become overpowering. Hearing from the Fed is a good thing, but too much of a good thing is not good.
I add only this, from my experience as a teacher and litigator: people tune out speakers who talk too much. People listen closely to speakers who selectively, thoughtfully, and respectfully express themselves.
Couldn't agree more. It's become ridiculous, not least because fiscal policy is the vastly more powerful and flexible policy instrument and all of this yammer about monetary policy is an embarrassing distraction from the failure of legislators to properly exercise their mandate.
Good article, Claudia. It seems that what we're witnessing is a different kind of inflation: Inflation of egos. If you watch Jerome Powell speak, you get the sinking feeling that he likes to hear himself talk more than to say anything useful. I wish it were just a case of a big ego. When Powell (and the man behind the curtain, L.S.) repeatedly says things that are false (e.g., "high unemployment will lower interest rates," ) you start to realize that either he's an idiot, which I doubt, or he's corrupt. The main effect of raising interest rates has been to increase the wealth of those who can afford to park money in savings accounts and to make real estate accessible only to people who can afford double or triple the mortgage rates of just a few years ago. Very sad.
Dots no bueno. Sep not that great either to publish. I would like to see more dissenting votes on policy like at the bank of England. Consensus is good but not at the cost of airing out different views. I think the fomc goes a little bit too far about needing consensus. Some dissent is positive.
I'm really glad you are pointing this out. Wall Street is a volatile mess over "Fed speak" (I watch and listen to it every day). The people they bring on these TV programs to talk about the Feds ever move still think the Fed is driving the car,...maybe in a ditch! The US economy is very strong due many factors, and with the decrease in labor we are going to see increases in wages, which is going to further fuel demand.
The Feds high interest rates are increasing costs businesses and workers, adding to inflationary pressures. How can anyone with a straight face claim to be concern with inflation while adding to the accumulation of compound interest on the non-government sector? So, we are going to just blow up the economy to avoid increased labor costs? Real worker wages in the US have been going in reverse sense the 1970 due to neoliberal policies and people like Paul Volcker (Powell's "hero").
Our failure to preform necessary investments in the US when we had the available workforce is a major contributor to the problems we now are forced to deal with. So, are we just going to shut down US investment, so a few corporations don't have to pay a higher working wages? I got news for many of these narrow-sided businesses calling for the Fed to stop worker wage increases, many of you are going to go out of business of see significant reductions in your business volume before the Fed gets there in today's environment. This is not the 1970s! We squandered the baby Boomer generation with corporate Americas "reserve army of the unemployed" driving down wages.
We have a huge labor shortage problem in the US, much of it created by politicians using immigration as a policy tool. The junk economics that surrounds US fiscal and monetary policy prevents us from focusing our energy in the right directions to solve the problems. We continue to view policy through the "how are you going to pay for it" lens, when the problem is resources and their allocation. This also applies to Fed policy. We continue to pretend/believe inflation this is a "money problem (spending) while ignoring the supply side.
Thank you, Claudia for your focus on the supply side, without voices like yours we would be in trouble.
Agree completely with this view and would also suggest that they get rid of dots, aka forward guidance which when judged as to whether it enhances of detracts from the Fed's credibility, most would say it detracts. There needs to be some cost benefit analysis applied to these and other communications.
Thankfully for me the only person that I listen to regarding the fed and interest rates is the likes of Stephanie Kelton and Warren Mosler who have stated from the beginning that Jerome Powell along with other fed speakers have gotten the rate hike thing backwards. They are clueless at this point and its embarrassing to hear one speaker after another. Funny part is, if they want to reduce inflationary pressures, start cutting rates.
Claudia I respectfully disagree. Indeed the end of your piece seems to provide the answer to the problems you raise regarding the variability or lack of clarity in individual members views. What’s necessary is to filter the information to focus on the individuals that tend to have the greatest information content. We need to use better filters as opposed to restrict or manage the information flow.
And frankly Powell perhaps was part of the problem. What was he on by signalling the great pivot in December that was clearly based on very uncertain forecasts? Focusing the information flow on the guy who may be as fallible as any of them at predicting the future does not seem to be a step forward. Rather what will happen is sudden policy lurches where a very different stance will suddenly emerge without warning because the group has been changing tack in private for a while and no one will know.
I think it's more what is said and not said than too much saying.
The Fed really ought to explain its FAIT policy,
a) that it is a "forward looking" average,
b) that it is only "flexible" upward,
c) that it is 2% (and more) for a reason -- allow relative prices changes caused by shocks to occur when some prices cannot fall,
d) that zero% would not be desirable.
The Fed really ought NOT to give unconditional "forward guidance" about future settings of any of its policy instruments, nothing that would actually constrain it from adopting whatever setting future data might indicate. Explaining its reaction function, how it weighs the costs and benefits of over- (AND UNDER-) target inflation and unemployment would be great. Explaining that fiscal policy affects interest rates, not inflation would be great. In this context, there is nothing wrong with different governors expounding different reaction functions and inflation/unemployment tradeoffs.
My worry is that no one is really criticizing Powell. Previously the fed chair took on a lot of heat, but he is facing none compared to previous chairmen.
I add only this, from my experience as a teacher and litigator: people tune out speakers who talk too much. People listen closely to speakers who selectively, thoughtfully, and respectfully express themselves.
Couldn't agree more. It's become ridiculous, not least because fiscal policy is the vastly more powerful and flexible policy instrument and all of this yammer about monetary policy is an embarrassing distraction from the failure of legislators to properly exercise their mandate.
Polyphony is bad for policy. Seeing how the sausage is made inspires the confidence of mystery meat in a sandwich.
Good article, Claudia. It seems that what we're witnessing is a different kind of inflation: Inflation of egos. If you watch Jerome Powell speak, you get the sinking feeling that he likes to hear himself talk more than to say anything useful. I wish it were just a case of a big ego. When Powell (and the man behind the curtain, L.S.) repeatedly says things that are false (e.g., "high unemployment will lower interest rates," ) you start to realize that either he's an idiot, which I doubt, or he's corrupt. The main effect of raising interest rates has been to increase the wealth of those who can afford to park money in savings accounts and to make real estate accessible only to people who can afford double or triple the mortgage rates of just a few years ago. Very sad.
Dots no bueno. Sep not that great either to publish. I would like to see more dissenting votes on policy like at the bank of England. Consensus is good but not at the cost of airing out different views. I think the fomc goes a little bit too far about needing consensus. Some dissent is positive.
I'm really glad you are pointing this out. Wall Street is a volatile mess over "Fed speak" (I watch and listen to it every day). The people they bring on these TV programs to talk about the Feds ever move still think the Fed is driving the car,...maybe in a ditch! The US economy is very strong due many factors, and with the decrease in labor we are going to see increases in wages, which is going to further fuel demand.
The Feds high interest rates are increasing costs businesses and workers, adding to inflationary pressures. How can anyone with a straight face claim to be concern with inflation while adding to the accumulation of compound interest on the non-government sector? So, we are going to just blow up the economy to avoid increased labor costs? Real worker wages in the US have been going in reverse sense the 1970 due to neoliberal policies and people like Paul Volcker (Powell's "hero").
Our failure to preform necessary investments in the US when we had the available workforce is a major contributor to the problems we now are forced to deal with. So, are we just going to shut down US investment, so a few corporations don't have to pay a higher working wages? I got news for many of these narrow-sided businesses calling for the Fed to stop worker wage increases, many of you are going to go out of business of see significant reductions in your business volume before the Fed gets there in today's environment. This is not the 1970s! We squandered the baby Boomer generation with corporate Americas "reserve army of the unemployed" driving down wages.
We have a huge labor shortage problem in the US, much of it created by politicians using immigration as a policy tool. The junk economics that surrounds US fiscal and monetary policy prevents us from focusing our energy in the right directions to solve the problems. We continue to view policy through the "how are you going to pay for it" lens, when the problem is resources and their allocation. This also applies to Fed policy. We continue to pretend/believe inflation this is a "money problem (spending) while ignoring the supply side.
Thank you, Claudia for your focus on the supply side, without voices like yours we would be in trouble.
Agree completely with this view and would also suggest that they get rid of dots, aka forward guidance which when judged as to whether it enhances of detracts from the Fed's credibility, most would say it detracts. There needs to be some cost benefit analysis applied to these and other communications.
Thank you for great write. I was writing on subject from slightly different angle.
https://3rdworldecon.substack.com/p/mainstream-economic-theory-and-interest
Thankfully for me the only person that I listen to regarding the fed and interest rates is the likes of Stephanie Kelton and Warren Mosler who have stated from the beginning that Jerome Powell along with other fed speakers have gotten the rate hike thing backwards. They are clueless at this point and its embarrassing to hear one speaker after another. Funny part is, if they want to reduce inflationary pressures, start cutting rates.
Claudia I respectfully disagree. Indeed the end of your piece seems to provide the answer to the problems you raise regarding the variability or lack of clarity in individual members views. What’s necessary is to filter the information to focus on the individuals that tend to have the greatest information content. We need to use better filters as opposed to restrict or manage the information flow.
And frankly Powell perhaps was part of the problem. What was he on by signalling the great pivot in December that was clearly based on very uncertain forecasts? Focusing the information flow on the guy who may be as fallible as any of them at predicting the future does not seem to be a step forward. Rather what will happen is sudden policy lurches where a very different stance will suddenly emerge without warning because the group has been changing tack in private for a while and no one will know.
Any comments on the PIIE conference on post Pandemic monetary policy today? [https://www.piie.com/events/2024/monetary-policy-responses-post-pandemic-inflation-what-happened-and-lessons-learned]
I think it's more what is said and not said than too much saying.
The Fed really ought to explain its FAIT policy,
a) that it is a "forward looking" average,
b) that it is only "flexible" upward,
c) that it is 2% (and more) for a reason -- allow relative prices changes caused by shocks to occur when some prices cannot fall,
d) that zero% would not be desirable.
The Fed really ought NOT to give unconditional "forward guidance" about future settings of any of its policy instruments, nothing that would actually constrain it from adopting whatever setting future data might indicate. Explaining its reaction function, how it weighs the costs and benefits of over- (AND UNDER-) target inflation and unemployment would be great. Explaining that fiscal policy affects interest rates, not inflation would be great. In this context, there is nothing wrong with different governors expounding different reaction functions and inflation/unemployment tradeoffs.
My worry is that no one is really criticizing Powell. Previously the fed chair took on a lot of heat, but he is facing none compared to previous chairmen.