Must-read: Donald Kohn and David Wessel: “Eight Ways to Improve the Fed’s Accountability”
Must-Reads: Perhaps the most frustrating thing about monetary policy making since the taper tantrum has been that we outsiders find that (a) asymmetric risks plus (b) uncertainty about the true state of the labor market and (c) uncertainty about the position and slope of the Phillips Curve are dispositive. They make the case for keeping the monetary-expansion pedal to the metal overwhelming. Yet the Federal Reserve has not felt compelled to engage with outsiders making these arguments in any sustained and deep technocratic way. And those doing oversight at congress have been incapable of doing the job–what we have seen has been either blathering or, worse, ravings about the gold standard.
The extremely-sharp Don Kohn and David Wessel have good suggestions for procedural reform:
Eight Ways to Improve the Fed’s Accountability: “1. The Fed should… have monetary policy hearings quarterly…:
…2. The now semi-annual Monetary Policy Report… should become quarterly…. 3. The Fed should publicly release the Monetary Policy Report three days before the relevant hearing…. 4. The Monetary Policy Report should continue to include the Fed’s assessment of financial stability risks…. 5. Fed staff should continue to brief and field questions from the congressional staff…. 6. Congress should establish a process for obtaining and publishing the views of outside experts…. 7. Each quarterly hearing in the House should allow only half the committee members to question the chair…. 8. The Fed should hire outside experts to periodically evaluate the procedures used to generate… economic projections….
None of these suggestions would reduce the Fed’s independence. Rather, they would improve Congress’s oversight and the Fed’s accountability, at a time when our economic discourse would greatly benefit from better public understanding and increased confidence in the efficacy and appropriateness of the central bank’s actions.