Jerome Powell is ramping up Federal Reserve communication to build public trust and help insulate it from political attack.
In recent weeks, the Fed has announced a series of initiatives, including a monetary-policy review roadshow, a semi-annual assessment of financial stability, and its inaugural Supervision and Regulation Report. These follow Powell’s early promise of “plain-English’’ explanations and a doubling of his press conferences starting next year.
Those initiatives, from the Fed’s first chairman from private equity, are aimed at broadening public support at a time when the central bank is raising borrowing costs for consumers and businesses. Powell’s mission has taken on greater urgency given President Donald Trump’s attacks and the residual suspicion in Congress about Fed power.
The strategy marks a break from the Fed’s typically stoic posture when under assault from the outside, effectively going on the offense to preserve its independence rather than assume a defensive crouch. If successful, the steps could also build confidence before the next recession, when the Fed may again need to use controversial emergency policies such as bond buying that infuriated some U.S. lawmakers.
Legitimacy and Accountability
“I see in the Powell Fed people who are trying to take on board greater participation from the country,’’ said Peter Conti-Brown, a Fed historian at University of Pennsylvania’s Wharton School. “The entire idea is that the Fed must have legitimacy and accountability to be effective.’’
That’s the long game for Powell. His background as a former Wall Street banker make greater communication a more instinctive response than previous Fed chairs, though Ben Bernanke and Janet Yellen had already moved a long way from the opacity of Alan Greenspan’s era.
Confronted with the populism that Trump is channeling, Powell’s predecessors say the institution needs to be defended. “It is not a desirable thing for a president to comment so explicitly on Fed policy,' Yellen said in October. In a newly published book, former Fed Chairman Paul Volcker called the institution a “precious asset” that “does need to be shielded from partisan politics.”
In the short term, this approach faces some serious challenges. Powell will next month begin holding a press conference after every meeting of the Federal Open Market Committee, addressing the public roughly every six weeks compared with once a quarter.
That’s happening just as officials shift to much more data-dependent policy as they weigh whether they should pause or keep hiking rates. In contrast, the past 12 months have been relatively predictable, with a move at every other meeting.
That trend is expected to continue when officials gather Dec. 18-19 in Washington, with investors seeing about a 70 percent chance they’ll raise rates again. But that may be the last rate move investors could see from a long way off.
At the same time, officials will continue publishing quarterly forecasts. How all these parts map together, and whether more public comment from Powell creates greater clarity, is a risk.
There’s plenty of scope for confusion. Investors have dialed back expectations for policy tightening next year to less than one quarter percentage-point move. That compares with Fed forecasts in September that showed three 2019 hikes, though these will updated at the FOMC meeting next week and could dip closer to market expectations.
“Data dependence, by design, is going to produce volatility in rate markets,’’ said Ed Al-Hussainy, senior global rates analyst at Columbia Threadneedle Investments. “At some point, that volatility has the potential to become disruptive.’’
More volatility adds to the cost of borrowing for ordinary Americans as lenders demand higher returns for interest-rate risk.
Speaking more frequently may help Powell keep market expectations closer in line with Fed thinking; markets could also seize on phrasing by Powell and interpret it in ways he didn’t intend.
Andrew Levin, a former Fed Board advisor, sees this as an opportunity for Powell to keep the public up to date with how the committee might respond if the economy veers off course.
“What he needs to do is talk about how various risks might affect the path of policy,” said Levin, who is now a professor at Dartmouth College.
One option would be for Powell to build on the opening statement he makes at the start of the press conference by offering more explicit guidance on how the Fed rate path might respond under hypothetical scenarios, such as a more pronounced European slowdown. Spokesman David Skidmore declined to comment on Powell’s plans.
Powell doesn’t appear shy about reaching out. In his first 10 months in office, Powell has met or called lawmakers more than 75 times, according to his calendar through October.
“What is good about Chairman Powell is that he is less of an economist and more of a down-to-earth practical lawyer who is trying to communicate what the Fed can do for the public,’’ said Chris Cole, senior regulatory counsel for the Independent Community Bankers of America in Washington. “This is a great initiative, and a welcome change from his predecessors.”
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