Standing on one’s Fifth Amendment right against self-incrimination is no way to create a stable standard of value. Removing any semblance of a signal about what the Fed might do next with interest...
So Kevin Warsh is trying to make the FOMC's accountability for the conduct of monetary policy as opaque as the Board's accountability for supervisory policy. (Confidential supervisory information is forever secret.) At least there is a certain consistency in this position.
This critique of Warsh confuses – hopefully because Warsh is himself confused and will become unconfused – a Fed that communicates
a) the reasoning which brought it to a decision, the effects that it expects that decision to have on outcomes of interest, and its targets for outcomes of interest
with
b) the policy instruments that it may expect now to use in the future.
What Walsh communicated was only his target, price stability, which taken literally would-be grounds for impeachment as the Fed has a maximum employment target as well. But it is a target.
I note that in the Keynes quote, he emphasized reducing risk in an outcome, inflation, not interest rates or money supply by which inflation may be made more productively predictable. To be unproductively predictable, predictable in ways that prevents the economy from achieving maximum real income, is worse than unpredictable.
" Markets can try to deal with hawks and they can try to deal with doves. But how can they deal with and price in a Chair who will not say what game he is playing?"
I think you are neglecting an important axis beyond hawk/dove. There is Trump/Truth And the midpoint between telling the truth and lying is apparently standing mute. I'd guess that silence is preferable to lies given verisimilitude by the long standing traditions of functional Fed Chairs.
How does Warsh’s silence compare to Greenspan’s opacity. Anytime he spoke was followed for days by head scratching columns in the press.
Thanks for this. A good, clear summary, and I appreciate the quotation of Claudia Sahm.
Amen! High value teaching. Thank you, Professor!
I think Warsh wanted the job but not the responsibility.
I think the idea that he is trying to avoid setting off any of the groups that got him the job is correct (that coalition is clearly fragile).
I think he plans on painting the target on the tree after he shoots the arrow.
I think I don't want to be long the long bond.
Nicely put... - B
So Kevin Warsh is trying to make the FOMC's accountability for the conduct of monetary policy as opaque as the Board's accountability for supervisory policy. (Confidential supervisory information is forever secret.) At least there is a certain consistency in this position.
This critique of Warsh confuses – hopefully because Warsh is himself confused and will become unconfused – a Fed that communicates
a) the reasoning which brought it to a decision, the effects that it expects that decision to have on outcomes of interest, and its targets for outcomes of interest
with
b) the policy instruments that it may expect now to use in the future.
What Walsh communicated was only his target, price stability, which taken literally would-be grounds for impeachment as the Fed has a maximum employment target as well. But it is a target.
I note that in the Keynes quote, he emphasized reducing risk in an outcome, inflation, not interest rates or money supply by which inflation may be made more productively predictable. To be unproductively predictable, predictable in ways that prevents the economy from achieving maximum real income, is worse than unpredictable.
See [ https://thomaslhutcheson.substack.com/p/regime-change-at-the-fed ]
" Markets can try to deal with hawks and they can try to deal with doves. But how can they deal with and price in a Chair who will not say what game he is playing?"
I think you are neglecting an important axis beyond hawk/dove. There is Trump/Truth And the midpoint between telling the truth and lying is apparently standing mute. I'd guess that silence is preferable to lies given verisimilitude by the long standing traditions of functional Fed Chairs.