The next Fed chair could take a small policy step that would make a huge difference
- President Donald Trump's nominee for Fed chair, Jerome Powell, should hold press conferences at every meeting.
- This would increase transparency and public trust, and bolster policy communication.
- The Fed will eventually need to take action in 'off' meetings, so the time to prepare itself and the markets is now.
Here's a simple but powerful way for Jerome Powell, President Donald Trump's nominee to replace Janet Yellen as Federal Reserve chair, to make a positive impact early in his tenure: Start holding press conferences at every one of the Fed's eight meetings each year.
Currently, and only since 2011, the Fed chair takes questions from reporters just four times per year, during the quarterly meetings when the Fed presents its updated economic and interest rate forecasts.
This meeting-on-meeting-off arrangement has caused investors to effectively overlook non-press conference meetings, despite assurances from Yellen and other Fed officials that "every meeting is live" and could have a change in monetary policy, and that the Fed chair could always hold an impromptu press call with reporters.
In practice, the mere attempt to organize a press conference or call on an ad hoc basis would likely create speculation about a major impending move, thwarting the Fed's goal of communicating policy clearly and effectively to the public and to financial markets.
Also in practice: Neither Yellen nor her predecessor Ben Bernanke have ever taken big policy steps, or even small ones, at non-press conference meetings. Powell may not have the same luxury - at some point the Fed may not be able to skip meetings before taking policy action.
Holding press conferences every meeting would not only make policy easier to conduct, but would also be better for transparency in general. Conferences at every meeting would maximize the amount of information about Fed deliberations made public immediately after the meetings, as opposed to three weeks later when the Fed publishes meeting minutes. That three week lag has previously led to leaks of highly-sensitive information, including one that led a top Fed official to resign in April.
This is a moment where the Fed may have some big decisions to make. The Fed has raised rates four times since Dec. 2015 to a range of 1% to 1.25%, and is still debating whether to hike borrowing costs further at its upcoming meeting next month. The central bank has also begun gradually winding down a $4.5 trillion balance sheet that swelled with the purchase of Treasury bonds and mortgage-backed securities in response to the Great Recession of 2007-2009 and its aftermath.
Powell, who is expected to be confirmed by the Senate without a hitch, will inherit an institution that faces sharp political scrutiny and public skepticism, nearly a decade after a financial crisis caused in part by lax oversight from regulators including the Fed.
A strong public presence such as that afforded by regular press briefings can help to counter those political pressures and the Fed's negative public image of favoring Wall Street over Main Street.
It's also not a departure from global norms. Both Mario Draghi and Mark Carney, heads of the European Central Bank and the Bank of England respectively, make post-meeting press conferences a regular practice.
"A potentially important area of change under a Powell-led Fed is in communication policy," Deutsche Bank economists Peter Hooper and Matthew Luzzetti wrote in a research note to clients.
"We would not be surprised to see Powell support a move to more press conferences, one after each meeting, under his chairmanship," they added.
Let's hope Powell gives it a shot. He's got little to lose, while the American public - and the Fed itself - have much to gain.