What does the U.S. Federal Reserve think about the repercussions of Britain's vote to leave the European Union? Amazingly, we still don’t really know — and we might not get a proper chance to find out until August or September. This dearth of information illustrates an important flaw in the way the world's most powerful central bank communicates.
Fed officials give a lot of speeches, and many have addressed Brexit in recent weeks. But, as they always say, they don’t speak on behalf of the Federal Open Market Committee, the body charged with assessing the state of the economy and adjusting interest rates accordingly. So their words offer only a partial picture of the central bank's thinking — and can even sow confusion.
Only one official, Fed Chair Janet Yellen, has the authority to speak on the committee's behalf, and she does so rarely. She occasionally makes speeches or testifies before Congress, and she holds news conferences after four of the committee's eight policy-making meetings every year. In all, according to the Fed's website, she has discussed policy at six formal public appearances this year. Her next won’t come until the Kansas City Fed's Jackson Hole conference in late August and the committee meeting of Sept. 20 to 21.
This meager communication schedule has at least two unfortunate consequences. For one, when the open-market committee meets next week, it will have no opportunity to convey its thinking on the crucial issues of the day — including Brexit and the troubles of European banks — other than the cramped and formulaic language of its regular policy statement. True, individual Fed officials will provide their own takes in the days and weeks following the meeting — but again, they won’t be speaking on behalf of the committee.
Second, when it can’t properly explain its actions, the committee is constrained in what it can do. If, for example, it wanted to lower interest rates — a big change compared to the market's expectations — it would probably choose to wait until the September meeting, when there would be a news conference at which Yellen could lay out the rationale and answer questions. In other words, the Fed's approach means that it can make big decisions only at every other policy-making meeting — a bad way to conduct monetary policy in a time of great uncertainty.
The Fed hasn’t always been so taciturn. In 2004, at the beginning of the central bank's last tightening cycle, Chairman Alan Greenspan spoke or testified on 29 separate occasions, according to the Fed’s online library. Granted, his language was famously hard to parse. But by speaking nearly three times a month, he left no confusion among the public or Fed watchers about who to follow if they wanted to know the future course of monetary policy.
Today, people are a lot more concerned about the state of the global economy than they were in 2004, and the round-the-clock news cycle has intensified. So if anything, the Fed should be communicating more. That means having a press conference after every open-market committee meeting, and having Yellen make a lot more public speeches.
The Fed has made many positive changes to its communication over the past five years, starting with then-Chairman Ben Bernanke's first post-meeting news conference in April 2011. If it wants to keep the public adequately informed, it must go further.
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.
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