The U.S. Federal Reserve has a zombie problem.
Each year, the Fed sets the course of monetary policy at eight regularly scheduled meetings of its Federal Open Market Committee. Chair Janet Yellen holds a press briefing after only four of them.
Fed watchers widely believe that when policy meetings aren’t followed by a Yellen news conference (as the upcoming meeting on Nov. 1-2 won’t be), the Fed is unlikely to take any significant action. So the press-conference meetings are viewed as “live” and the non-press-conference meetings are viewed as “dead.”
Of course, policymakers insist that all meetings are live, but that’s just viewed as another less-than-credible statement from the Fed.
What to do about the supposedly dead FOMC meetings? I have three ideas.
First, Yellen could bring them to life by holding a press conference after every FOMC meeting, as the European Central Bank does. The Fed should also consider including other FOMC participants in the briefings, also the way the ECB does it. For example, Yellen often is asked about supervision and regulation. It would make sense for Governor Daniel Tarullo, who is widely recognized as the lead governor on such matters, to answer those questions.
Second, the FOMC could breathe a little life into the dead meetings by taking some significant actions at non-press-conference meetings. After all, the committee operated for over three-fourths of a century without press conferences and was able to make important policy moves. Presumably, showing a willingness to act without a press conference would help convince markets and the public that all meetings are live, as Fed officials often claim.
This solution sounds appealing except for one small problem: The Fed has taken significant actions at past non-press-conference meetings. The first press conference was in April 2011. The Fed made big changes in policy at the next two non-press-conference meetings (announcing its first date-based forward guidance in August 2011 and announcing “Operation Twist” at the next meeting in September 2011). Despite these moves, the non-press-conference meetings are still generally viewed as more dead than live.
I like my final idea the best: The FOMC should just declare that no monetary-policy action will take place, and that no accompanying statement will be issued, after non-press-conference meetings. As the whole dead-meeting notion suggests, there’s typically no compelling reason to take monetary-policy actions more than once a quarter. Accordingly, Congress only requires the FOMC to meet four times a year.
To be clear, I’m not saying that the FOMC should eliminate all of the non-press-conference meetings. The committee could use some of them as discussion sessions intended to develop a better collective understanding of the economy and the appropriate policy framework.
During my time on the FOMC, the committee held such meetings on an ad hoc basis in October 2010 and in early March 2014. I found them to be extremely valuable, and I believe that the committee would be well served by including them as a more regular part of its schedule.
Narayana Kocherlakota is the Lionel W. McKenzie professor of economics at the University of Rochester. He served as president of the Federal Reserve Bank of Minneapolis from 2009 through 2015. To read more of his insights, GO HERE NOW.
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