What Jerome Powell Should Say as the New Fed Chair
(Bloomberg View) -- Dear Federal Reserve chair-designate,
Congratulations on your selection. As you ponder your first public pronouncements, here is some friendly advice.
First up, stress continuity. It was an important part of the opening remarks of both Ben S. Bernanke and Janet Yellen. It's especially important given the Fed is tightening, albeit gradually. The central bank has just begun the process of reducing its balance sheet. Don't scare the horses just yet.
Next, underscore the Fed's independence from the executive branch … without coming across as tin-eared or provoking a tweet from you-know-who. He's left the Fed alone thus far. Let's keep it that way. The Fed's independence has been one of the bedrocks of the entire global economic system. But stress the U.S., given nativist sentiment's pull right now. In fact, don't mention the globe. Just say "American" a lot.
Third, express confidence in the state of the American economy without sounding cocky or complacent. While growth isn't stellar, it's been a long expansion and the employment side of your mandate looks good. As for the other mandate: Inflation is annoyingly low. Agree with Yellen that you may not fully understand what's going on here. As she said, it’s a mystery.
Fourth, note that you need to be confirmed by the Senate. And find a way to let the boys and girls on the Hill know your door will always be open. The Fed was established by an act of Congress. Congress can undo you anytime it chooses. While we are on the subject, make the point gently that the Fed can't do everything. There's a big, and essential, role for fiscal policy. Which is Congress's job.
Make clear you are happy to work with lawmakers on the regulatory front. Be cautious, though. Some of the post-crisis rules may have gone too far, but I don't sense a huge appetite for junking Dodd-Frank entirely. And you definitely don't want a 2008-style fiasco on your hands during these next four years. A garden-variety recession is a distinct possibility, but hopefully the entire financial system won't be at stake. Say at the start that you are for sensible regulation. That covers a multitude of sins.
To your colleagues on the Federal Open Market Committee, emphasize the primacy of the Committee. For good or ill, there's been a real flowering of democracy at the FOMC in recent years. True, this can sometimes make for a lot of noise, some of it seemingly contradictory. But the toothpaste is out of the tube. The district banks matter, and their presidents are unstoppably voluble. They report to their own boards. Give your vice chair the task of managing relations with the district banks. There's precedent for this. Continuity (see above) will go down well.
Communications. The Fed has come a long way, but was late to the party relative to, say, some of the public things the European Central Bank and Bank of Japan do. Resist any temptation to do away with press conferences and go back to the era of selective leaks to favored stenographers.
Talk to your predecessors. Learn about what worked and what hasn't in terms of leadership style and approach. Reach out to your counterparts at other major central banks. It's become very fashionable to say globalization is in retreat. That doesn't appear to be the case in the financial world, at least.
Thank Yellen for her stewardship and her years of public service. She has made a tremendous contribution. She managed the start of rate increases, and she developed a framework for reducing the balance sheet and kicked that off. She did it all with humility, poise and good humor.
Be humble. Like just about every public institution in America, the Fed's once near-mythic status has taken a hit the past decade or so. Be careful with this institution. For all its flaws, it's what we have got.
Congratulations! Now, to work.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss writes and edits articles on economics for Bloomberg View. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
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