The Fed Should Stop All Public Speaking Engagements

I doubt seriously the wisdom and utility of Jerome Powell (or any Fed official for that matter) participating in what amount to political debates during politically sensitive years. And these days, every debate is a political debate and every year is a politically sensitive year.

While previewing this week’s scheduled Fed banter, I expressed reservations in that regard about Powell’s forthcoming cameo at the Cato Institute’s 40th Annual Monetary Conference.

Everyone loves to carry on about purported “mandate creep” at the Fed, and there was no shortage of attention seeking during the pandemic on the part of critics insisting monetary policy overstepped legal boundaries. It’s interesting that critics generally expect the Fed to be fiercely independent but also wholly accountable, simultaneously. There’s an inherent tension between independence and accountability, which we (all of us) attempt to resolve by suggesting that, in the context of the Fed, independence means freedom to pursue the dual mandate unburdened by interference, because that sort of unbridled latitude is the best way to ensure that the only people to whom the Fed is accountable are voters. A more elegant solution might be to make Fed officials elected, but that’d mean putting monetary policy in the hands of the same people who vote for presidents. And we all know how dangerous that can be.

Jokes aside, the whole setup is an oxymoron. A truly “independent” Fed sets policy as it sees fit and isn’t compelled to explain itself to anyone, ever. That’s independence. If the executive or Congress isn’t enamored with the way things are working out, they can always remove (or replace) Fed officials or change the Fed’s mandate. And if the public is displeased, voters can elect new presidents and politicians.

When considered in that light, it’s not obvious why every, single weekday has to feature a Fed official explaining something to, or debating something with, someone who isn’t also a Fed official. There’s a (very strong) argument to be made that the more entangled the Fed is in public discourse, the worse off policymakers are when it comes to operational latitude in pursuit of their mandate.

Everything Fed officials say in public is parsed, twisted, documented for posterity and, in the social media era, given the meme treatment, where that entails, among other things, Photoshopping Powell’s head onto the body of superheroes and animals and using Fed soundbites as captions for looped Will Ferrell gifs. I’m not sure any of that is conducive to the preservation of institutional integrity, nor am I convinced that hauling Fed Chairs up to Capitol Hill so Republicans and Democrats alike can take turns berating them for political points is constructive. In fact, I’d be inclined to call it injurious and potentially perilous in an era when America’s institutions are suffering from an acute credibility crisis.

Thursday’s Cato discussion was a good example of why Fed officials should consider eschewing speaking engagements — all speaking engagements. Powell, the third Chair to participate (Alan Greenspan and Ben Bernanke both addressed the conference previously), was compelled to defend the dual mandate. “It’s my view that the dual mandate has served the public well,” he said, when asked if the Fed should shift to a single mandate centered on inflation. The fact that the Fed, of its own accord, is now unabashedly pursuing just such a single mandate with regard to inflation, and the (unassailable) contention that were unemployment to soar to 20%, the Fed would switch to focusing almost solely on growth (and thereby job creation), suggests the dual mandate is just fine. Powell agrees. “There isn’t a strong case for changing” it, he said.

You could argue that if the Fed’s sole goal was price stability, inflation in the US wouldn’t be triple the Committee’s target. But then you’d have to explain why, in a number of locales where price stability is the only mandate, inflation is at least as high as it is in America, if not materially higher.

Some of the questions Powell received (or, more aptly, some of the assertions to which he was subjected and offered no opportunity to refute in real time) were wholly disingenuous and, in some cases, wholly wrong, to the extent questions can be “wrong.”

For example, while introducing Powell, Cato president and CEO Peter Goettler, pretty clearly dialing in from his living room, said, “We heard policymakers ascribing the increase in price inflation to the pandemic and related supply disruptions, and while this has undoubtedly contributed, there seems a much stronger consensus now that it’s been in larger part policy-driven.”

Forgive me, but that’s manifestly untrue. There’s no such consensus anywhere, let alone a “much stronger” consensus. In fact, the macro debate of our time revolves around determining what portion of the pandemic-era (which includes the war in Ukraine) inflation is supply-driven and what portion is attributable to demand. That debate is ongoing, and likely won’t ever be decided conclusively. Goettler’s assertion of a “strong consensus” was, in my judgement, a political talking point, nothing more.

After graciously congratulating Cato on decades of “successful” monetary conferences, Powell gently noted that prior to the pandemic, unemployment sat near record low levels with no obvious signs of inflation: “In that sense, none of this high inflation that we see around the world now would’ve happened without the pandemic.” He then reminded Goettler that, in the absence of any policy response, the consequences of the pandemic shock likely would’ve been “dire.”

From there, the entire discussion was an asinine exercise in question-begging — a veritable parade of tautologies. Without the pandemic, there wouldn’t have been a pandemic policy response, nor would there have been pandemic-related supply disruptions, but there was a pandemic, so what, exactly, are we talking about? I’m not sure anyone knows anymore, although it seems to me, on most days, that the policy-inflation debate is just like every other debate in America — namely, a chance to scapegoat one another for problems that are everyone’s to solve. Or, put differently, a recipe for divisiveness and, eventually, societal decay.

Goettler went on to parrot a laundry list of libertarian talking points, posing them as questions to Powell. Goettler “took some comfort” in Powell’s Jackson Hole speech, but said he “remain[s] concerned that the intense political pressure… to avoid collateral economic damage” could get the better of the Fed “before the inflation fight is won.” “I just wondered if there was any way you could help me sleep a little better on that score?” a grinning Goettler mused, as Powell looked on, visibly uncomfortable.

It didn’t seem to occur to Goettler — or, actually, it surely did occur to him, and that’s the problem — that the only “political pressure” Powell felt in that moment was radiating from Goettler’s living room.

I don’t think there’s much use in recapping the rest of the exchange, which went on for nearly an hour. Readers surely get the point. Powell’s Cato appearance was everything I warned it might be, and he should’ve avoided it, just like it might be preferable for Fed officials to avoid most public speaking engagements. Whatever’s gained in terms of “transparency” is surely outweighed by all that’s lost in translation and lost to interlocutors pushing an agenda.

And remember: Everyone has an agenda. The Fed isn’t supposed to, though, other than the agenda implied by their mandate. It seems to me that the best way for the Fed to ensure that policy isn’t influenced by politicians, ideologues and markets, is to simply stop engaging with them.

“It’s important,” Powell said Thursday, that the Fed “sticks to its assigned tasks.” As far as I’m aware, those “tasks” don’t include entertaining anyone and everyone who wants a say in how an independent panel of technocrats conducts its affairs.