Brookings: Topics - Federal Reserve System

The Fed's Trying To Get the Party Started, So Why All the Criticism?

George L. Perry — Mon, 18 Mar 2013 15:02:00 -0400

Fed bashing has a long history. The Fed has a dual mandate of achieving both high employment and low inflation, and pursues those aims by raising short term interest rates when aggregate demand threatens to become excessive and lowering rates when aggregate demand needs a boost. But while the mandate is symmetric, the popularity of raising and lowering rates is not. Politicians and Wall Street pundits have often criticized the Fed when it tightened policy because higher interest rates were seen as bad for jobs, profits and the stock market, and disliked by borrowers. As Bill Martin, Fed chairman in the ‘50s and 60s, observed, the Fed is unpopular because its job is to take away the punch bowl just when the party is getting good.

So why are some politicians and financial observers criticizing the Fed today when it is just trying to get the party started? In the typical postwar business cycle, high interest rates brought on recessions and then low short term interest rates helped start expansions that restored high levels of employment. This time the recession was brought on by a financial crisis that made it deep and stubborn, and conventional monetary easing-reducing short term rates by buying short term Treasury securities-was not sufficient. Short term rates have been zero for an extended period, yet the expansion has been slower than everyone wanted.

To its great credit, the Fed has innovated its policy by buying sizable amounts of long term treasury securities and government backed mortgage securities in order to reduce long term borrowing costs more directly. And it has committed to continue this policy of quantitative easing until specific targets for the expansion are met. But precisely because these steps are unprecedented, the consequences are less predictable than they would be with conventional policies, and critics can speculate more freely.

Are today's critics on to something? One of their complaints is that the great liquidity the policy has produced will lead to inflation. Someday, inflation could become an issue, but not soon. Along with the rest of the advanced economies, the U.S. problem today is how to boost aggregate demand to expand employment, not how to contain it to resist inflation. Wage costs—a key element of any sustained inflation—are rising so slowly that they are impeding the growth of consumption, a key element of demand growth in the economy. This situation will change only very gradually, giving the Fed plenty of time to respond if it needs to.

Other skeptics suggest the Fed will have trouble unwinding its positions in government and agency bonds in an orderly way. Bond prices may well fall sharply once market participants believe the Fed is starting to reverse course. And that could cause stock prices to drop, too. But markets often adjust abruptly, and these changes would be consistent with the Fed's changed policy aims. If market movements achieve the desired change in rates without much selling by the Fed, the Fed is under no compulsion to continue selling.

Finally, some critics believe the Fed's easy monetary policy-both quantitative easing and ultra low short term borrowing rates-is creating bubbles in stocks and possibly other assets. Stocks have had a long rise since the market bottom in 2009, and a sharp rise over just the past several weeks. But profits have risen sharply over the long period and price to earnings ratios are generally near the middle of their historical range, not the top.

A correction in stocks can happen with no apparent reason and the Fed's aggressive easing will not be responsible when the next one comes. The present easing will benefit the stock market in the longer run by continuing to promote economic expansion. Just compare stocks in Europe, where economic expansions have faltered, with stocks in the U.S.

Authors

George L. Perry

Publication: Real Clear Markets

Image Source: © Mike Stone / Reuters

Would Congress Care if the Federal Reserve Lost Money? A Lesson from History

Sarah A. Binder — Tue, 26 Feb 2013 00:00:00 -0500

Chairman Ben Bernanke addressed critics today before the Senate Banking Committee, as he delivered the Federal Reserve’s Semiannual Monetary Policy Report. Bernanke’s testimony comes on the heels of a prominent monetary policy conference last week, in which participants speculated about the political fallout that could ensue once the Federal Reserve begins to unwind the unconventional policies it put in place during and after the Great Recession. Because the Fed could incur losses when it eventually raises interest rates and sells off assets from its ballooned balance sheet, many expect that by the end of the decade the Fed might no longer generate sufficient earnings to return profits to the Treasury. After a decade of rising profits remitted to Treasury (topping out at nearly $89 billion last year), many wonder whether Fed losses could trigger aggressive push back from Congress.

Questions about how legislators might respond to future Fed losses are worth pondering, not least because Bernanke himself raised the prospect of potential Fed losses in his testimony today. A few thoughts on the political challenges faced by the Fed, after a brief historical detour.

Contrary to most news coverage, the Federal Reserve Act (FRA) does not require the Fed to remit profits to Treasury. Congress imposed a franchise tax on the Fed in the original FRA in 1913—requiring the Fed to remit 100 percent of its earnings after paying expenses and dividends, lowering the tax in 1919 to ninety percent. But Congress stopped taxing the Fed in 1933, swapping the franchise tax for a one-time Fed payment to help capitalize the newly-created Federal Deposit Insurance Corporation. Only after the Fed became profitable in the wake of World War 2 did Congress did consider re-instating the franchise tax. In response, the Fed pre-empted Congress in 1947 by reinterpreting an obsolete anti-inflationary provision of the FRA that had been designed to empower the Fed to charge interest on its reserve banks’ holdings of Federal Reserve currency. The Fed simply choose a rate that generated revenue equal to what would have been collected by a franchise tax and then remitted most of that revenue to Treasury. Today, an internal Fed policy still guides remittances, absent a statutory mandate.

The Fed seemed to have several motivations for moving independently of Congress in 1947 to formalize a remittance policy. First, the Fed sought to pre-empt congressional critics angling to reinstate the franchise tax. Moving first allowed the Fed to protect its independence and flexibility over the level of profits returned to Treasury. Second, beating Congress to the punch empowered the Fed in its efforts to negotiate with Treasury an increase in the fixed interest rate that the Fed paid on government debt during wartime. As FOMC meeting notes from 1946 hint, by promising to send profits to Treasury, the Fed would subsidize the increased borrowing costs faced by Treasury once the Fed raised rates. By promising remittances and avoiding a statutory mandate, the Fed’s solution preserved the Fed’s flexibility and independence over monetary policy. In fact, some years later the Fed exploited its flexibility to increase the level of profits returned to Treasury.

Why care about the history of Fed remittances? With caveats given the differences between then and now, the 1947 episode offers a glimpse of potential legislative landmines should Fed profits turn to losses.

First, the Fed still prizes its independence and would oppose any congressional efforts to reinstate the franchise tax. Even if there is no practical difference between the Fed’s internal policy and a mandated franchise tax, the Fed would no doubt oppose a statutory mandate to hand over future profits on the grounds that such a mandate would infringe on the Fed’s conduct of monetary policy. Still, historical precedent for the franchise tax might undermine the Fed’s persuasiveness.

Second, Congress likely cares about Fed profits and will question underlying policies if they generate losses—even if such losses ensue from an exit strategy designed to stem inflation. Congressional Republicans, who never liked the Fed’s asset purchases in the first place, could use potential losses to hammer the Fed’s conduct of monetary policy. Democrats, counting on the Fed to secure its statutory mandate of maximum employment, could accuse the Fed of prematurely unwinding its unconventional policies. In sum, both parties could exploit potential losses to criticize the Fed’s policy choices. If the economy had indeed strengthened, then perhaps lawmakers would give the Fed a pass: Congress tends to ignore the Fed when the economy is in good shape. More likely, Congress would pounce. Even if a franchise tax were to be off the table, Fed losses could re-fuel the audit-the-Fed movement, on the grounds that Congress needs to know more about the details of the Fed’s exit strategy. Already today, half of the Senate Republicans have signed onto Senator Rand Paul’s audit the Fed bill. (Like father, like son.) Continued polarization reduces the chances of congressional action. But imposing more transparency on the Fed might have bipartisan appeal.

Ultimately, much uncertainty pervades projections about potential Fed losses in coming years, as suggested recently by Fed economists. And overall, economic growth stemming from the Fed’s unconventional policies would presumably increase tax revenues flowing into Treasury’s coffers, offsetting losses from the Fed. Still, as one former Fed governor said at Friday’s conference, “Politicians have very short memories…They’re going to focus very much on the fact that the Fed is no longer pulling its weight in terms of producing remittances for the federal government.” If Fed profits plummet, lawmakers’ myopic eyesight reduces the chances that Congress will see the big picture.

Authors

Sarah A. Binder

Publication: The Monkey Cage

Image Source: © Jason Reed / Reuters

Comments on “The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn’t Matter”

Donald Kohn — Sat, 05 Jan 2013 00:00:00 -0500

Editor's Note: These comments on the paper "The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn't Matter" (PDF) by Christina D. Romer and David H. Romer were presented at the American Economic Association Annual Meeting on January 5, 2013.

This is a very interesting and thought-provoking paper. I recommend it highly, not only to all who are interested in Federal Reserve history, but also to those seeking an interesting perspective on recent monetary policy.

The Romers ascribe lack of forceful enough action in the 1930s and 1970s to excessive policymaker humility about the power of monetary policy to address the most important problem of the time. Another way to characterize the same thing is that the timidity of action reflected policymakers perceptions of the relative effect of policy on output and inflation—and hence on the balance of costs and benefits of policy actions. In the 1930s policymakers saw little benefit for lowering unemployment of further ease and large potential costs in terms of higher inflation. In 1970s they saw little effect on inflation from tighter policy but large potential costs in terms of lost output. We can see in retrospect that these assessments were incorrect and based on misunderstandings of underlying economics—of how much slack there was in the economy, the relationship of slack to inflation, the effect on slack of policy actions, and the importance of expectations in shaping the response of the economy to policy actions.

The Romers raise the question of whether recent monetary policy has also been influenced by insufficient confidence in the power of policy actions to deliver net benefits in terms of reducing unemployment. They are concerned that the Federal Reserve has not acted as forcefully as it could have or should have over the past few years because of misperceptions about the relative costs and benefits of actions. An important handicap in making such a judgment is that we are in uncharted waters---both in the behavior of the economy and the nature of the monetary policy response. We don’t have the luxury of 20-20 hindsight to determine what misunderstandings might have been unnecessarily holding back policies. We are in the middle of the situation now and are highly uncertain about what forces are holding back economic growth. That uncertainty is compounded by the use of new policy tools. We have little or no empirical basis for making judgments about the effects—costs or benefits—of large scale asset purchases, huge increases in the FR balance sheet, and increasingly detailed interest rate guidance.

My comments are framed around the following points: We need to be humble about what we know as economists under any circumstance—but especially now; but policymakers can’t let that humility freeze them into inaction, and we need to think about techniques to move forward in such circumstances; then we can examine how the Federal Reserve’s approach to policy has stacked up relative to these techniques for operating under uncertainty.

The last 10 years have highlighted just how little we know about how the economy works. Both policymakers and private agents should have been more humble in the years leading up to the crisis. The so-called “great moderation” led to complacency and overconfidence in both the private and public sectors. There was overconfidence about the self-correcting properties of private markets—how self-interest would limit financial and economic fluctuations. We overestimated the extent to which new financial instruments had led to the diversification of risk across markets and participants. We were overconfident about ability of monetary policy to steer the economy— to avoid major bouts of inflation or deflation and all but the mildest recessions and to counter financial collapses. Especially egregious was tendency to ignore longer-term financial and credit cycles and the intricacies and nonlinearities of the financial sector and its interactions with the real economy. We missed the significance of the buildup of leverage in both the financial and nonfinancial sectors, and their tendency to reinforce each other. And both the private and public sectors paid insufficient attention to tail risk in asset prices and its interaction with leverage and maturity transformation.

Our understanding and the models that embody it not only didn’t see the crisis coming, we didn’t see or fully understand the dynamics of the financial system and its interactions with the economy during the crisis, and we don’t understand why the recovery has been so slow. To gauge our lack of understanding on this last point, I looked at the projections of FOMC participants in June 2010—the last time I contributed to them. All the key relationships were off. We’ve seen much less growth than expected then, despite a more expansionary monetary policy; the unemployment rate is only a little higher than expected, even with the much lower growth, so that relationship was off as well; and inflation has turned out significantly higher than expected, even with less growth and a slightly higher unemployment rate.

A major complexity in understanding recent developments is the interaction of the shortfall in demand with needed structural shifts and realignments of demand and production and the recovery of balance sheets—the layering of a shorter-term business cycle on top of longer-term structural shifts. We have only limited guidance from history about how this is going to play out in context of the current US financial system and the widespread adjustments in the global economy.

And to this relatively mysterious economic structure, the Federal Reserve is applying unprecedented policy actions. Efforts to drive down longer-term interest rates with unconventional policy actions are natural extensions of the short-term rate policy adjustments of more normal times and should work through the same policy channels, but the new actions are naturally very hard to calibrate. What effects are purchases or interest rate guidance having on financial conditions? What effect are changes in financial conditions having on spending and inflation? To what extent does it matter whether long-term rates are reduced by a change in expectations because of guidance versus a change in the term premium because of purchases? Will there be costs, especially down the road on exit? There is very little history to use to judge the costs and benefits of these actions.

But uncertainty about the economy doesn’t necessarily have to imply caution or paralysis in policy. For example, one could simply adjust policy to make the desired outcome the most likely—even if the distribution of possible outcomes was relatively flat and not well understood. But as the Romers highlight, the natural human tendency is to hold back when uncertain about the system and the effects of policy action—about the balance of costs and benefits to bolder action. How can policymakers counter such an impulse? We can draw on past experience with policymaking for a few suggestions.

The first technique is to use “risk management”. Weigh the costs and benefits of missing to one side or the other of your inflation and output objectives; identify the most important problem relative to those objectives—the one that would reduce public welfare the most if policy were overly cautious; and take some chances to deal with that problem. This approach is especially attractive if the likelihood and cost of missing other objective is seen as relatively small. So, this would imply extra effort to deal with unemployment in the 1930s relative to inflation and with inflation in the 1970s relative to unemployment. Of late, high unemployment or low output would appear to embody a greater cost and risk to public welfare than rising inflation, given the evident slack in the economy and low inflation; of course, this could change in the future.

Second, learn and revise as you go. Policymakers need to be ready to update their understanding as they gain experience with the prevailing economic situation and the effects of policy, which should help gradually clarify the costs and benefits of their policy choices. This implies flexible policy implementation and a willingness to revise the policy setting and the plan going forward. In my view, a time of great uncertainty about underlying economic structures is not well suited to policy rules, especially rules based on recent economic data. The implications of incoming data for future economic performance—when changes in policy will have their effect-- will need to be updated frequently, and lessons learned about the effects of policy settings on the economy. These circumstances would seem to embody the classic case for gradualism in policy implementation—for slowly altering the stance of policy as you learn about its effects. It is critical under these circumstances to make the framework for actions and revisions very clear to the public so agents and markets understand how the central bank is processing information and can anticipate its actions as well as possible, increasing the odds that spending and pricing decisions will reinforce central bank action.

How do we evaluate recent monetary policy experience in the context of heightened uncertainty and the possible techniques to deal with it? The Romers have three issues with the language of Federal Open Market Committee participants that they fear may be indicative that the Committee is not being as bold as it should be. First is the argument made by the FOMC that the benefits of added easing are limited and declining—and relatedly that monetary policy is “no panacea” for the problems of the economy. Second, they highlight the argument that there are potential costs to unconventional policies that may be significant and rising. And third, they cite the gradual evolution toward more aggressive policies as proof that the Federal Reserve should have been more aggressive to begin with.

In my view the FOMC has in fact followed the prescriptions for overcoming inertia and excessive caution. With respect to risk management it has clearly identified long-term unemployment as its major concern—so long as inflation is not likely to stray very far from its objective. Especially in the criteria it has put forth for considering when to begin tightening policy, it has shown a willingness to take risks on the inflation side to make progress on unemployment. Partly this reflects the level of unemployment and inflation relative to objectives, but part of the reasoning surely is that we know more about how to control inflation than how to boost employment with monetary policy, so if inflation overshoots persistently the FOMC can be confident it has the tools to bring it back down. Notably, the quotes the paper views favorably from former chairmen about taking bold actions are about controlling inflation—not about raising output.

I would judge that the actions of the FOMC evidence a learning process as well. Policy has evolved as the FOMC learned about the evolution of the economy—just how sluggish the recovery would be; and as it has learned about inflation—just how little inflation and inflation expectations have been affected by unconventional policies and increases in the Federal Reserve’s balance sheet, an oft stated worry of those opposed to bold action. Consequently, it has become more willing to use its unconventional tools over time, even when its forecast has only changed marginally, consistent with gradualism in the face of uncertainty. Moreover, it has increasingly spelled out its policy approach in public. Some of the added discussion has been tactical—using dates of possible first tightening to guide rate expectations down—but some has helped to elaborate the strategy better, including the January 2012 document about the framework for policy and the added information in December about the economic conditions that would guide its consideration of first tightening.

Moreover, I don’t think you can dismiss the possibility that as the operations scale up, the benefits of added unconventional measures are limited and declining, or that the costs are increasing, as reflected in the comments of FOMC officials. On the benefit side, the marginal effect of lower longer-term interest rates in bringing increasing amounts of consumption and investment from the future to the present may well decline the deeper into the pile of possible future projects you dig. And the income effect of lower rates damping the spending of savers may gather force relative to the substitution effect inducing greater saving the longer rates are expected to be quite low. On the cost side, the greater the purchases the higher the risk that market functioning may be impaired or that the eventual unwinding of the portfolio will have adverse consequences for financial stability. And the larger the portfolio, the more questions are raised about the fiscal risk the Federal Reserve is taking and about complications when it’s time to exit—to raise rates and roll back the portfolio.

Importantly, these concerns have not stopped the Federal Reserve from taking increasingly bold actions over time. But in this context, warnings from the Federal Reserve that monetary policy is “no panacea” for what ails the economy are understandable and justified. Can monetary policy restore full employment before the benefit and cost lines cross? And even if it can, wouldn’t the return to full employment be faster and more certain if other government policies were working in the same direction?

Finally, people point to the Volcker disinflationary episode as an example of how humility about what we know about the economy doesn’t have to imply timidity in action, and how forceful action can overcome pessimism about the effectiveness of policy. Monetary policy under Volcker’s leadership was decisive, bold, and effective at promoting the longer-run welfare of the US economy. For sure, Paul Volcker didn’t believe we knew much about how the economy and inflation worked—for example he largely ignored staff forecasts in light of their poor track record over the 1960s and 1970s. But he knew inflation had been very costly and could be reduced with monetary policy, with a one-time cost in output of unknown dimensions, but long-run gains. And he was willing to innovate in the conduct of policy in order to get that done.

It’s important to recall, however, that, his action followed years of failed efforts to tame inflation with policy gradualism and nonmonetary policies. Like the current Federal Reserve, he talked a lot about other governmental policies that he thought might make his efforts more difficult; he worried and spoke out forcefully on the risks he saw from the fiscal and current account deficits of that time; he’s not present to speak for himself, but I suspect he would be comfortable with the “no panacea” language the current Federal Reserve uses. And he was willing to back off in the fall of 1982 with inflation still above his objective but recession deepening and financial stability threatened. That is, he was willing to update his cost/benefit calculation as circumstances changed.

In the current situation the FOMC has said unemployment is very costly; it has signaled it is willingness to take risks on inflation to boost resource utilization; it has innovated in numerous ways; but it can’t and shouldn’t ignore its calculation of costs and benefits and adjust policy as needed. In sum, I’m not sure it’s justifiable to argue that the FOMC has missed its “Volcker moment” or has been less forceful than warranted in real time policymaking.

Authors

Donald Kohn

Publication: American Economic Association Annual Meeting

Image Source: © Larry Downing / Reuters

Federal Reserve Independence in the Aftermath of the Financial Crisis: Should We Be Worried?

Donald Kohn — Fri, 04 Jan 2013 00:00:00 -0500

Editor's Note: The following comments were delivered on a panel of the National Association for Business Economics at the American Economic Association Annual Meetings on January 4, 2013.

We are going through extraordinary period in business cycles and central banking. The too-calm, too-confident, veneer of the so-called Great Moderation was shattered by the worst financial crisis in 80 years. The Federal Reserve, indeed central banks all over the industrial world, have taken extraordinary actions in response to make sure this crisis not followed by an economic result like that of the 1930s.

The Federal Reserve expanded access to the discount window for banks, and it opened credit facilities to nonbanks for the first time since the 1930s, including in a few cases to help stabilize or facilitate the takeover of systemically important institutions at risk of failure that would have further destabilized the financial system. The Federal Reserve aggressively reduced short-term rates to zero and then, to spur growth, has worked to reduce intermediate- and long-term rates even further by greatly expanding its balance sheet with purchases of long-term securities and by issuing guidance about the future path of short-term rates. And it has addressed perceived clogs in the transmission of monetary policy by intervening directly in government guaranteed mortgage market—taking a hand in credit allocation where markets are not functioning well. Other central banks in industrial countries that have been hit by crisis in recent years have taken comparable, unconventional, steps to stabilize markets and encourage growth. We are in uncharted territory—both in our understanding of economic developments and of the policy response.

Naturally, understandably, and appropriately, these circumstances have increased the scrutiny of central banks, including the Federal Reserve, raising questions about the goals, governance and accountability of these institutions. This panel has been asked whether we should we be worried that this scrutiny will result in an erosion of independence. To foreshadow my answer: these actions should not and need not lead to a loss of monetary policy independence, but we need to be vigilant because risk factors have increased.

When discussing central bank independence, it’s important to draw two key distinctions about what we mean. The first distinction concerns functions performed by the central bank. With regard to independence, our main focus has been on the setting of monetary policy, not regulatory policy. In this regard, the Federal Reserve has always lived with a bifurcated regime. The Regulatory functions of the Federal Reserve have involved a very high degree of cooperation and coordination with other agencies. Major decisions are arrived at jointly by several agencies. And those decisions are subject to examination and oversight by the General Accountability Office of the Congress.

The cooperative character of bank regulation is made necessary by the balkanized US regulatory system, with many different agencies having a hand in regulation and supervision of the financial system. It also reflects the nature of the actions taken. Regulation is necessary to offset the moral hazard created by the safety net and deal with externalities. But it involves elements of credit allocation, it constrains private decisions, and it affects the relative positions of individual firms. And it can have consequences for the public purse if regulation and supervision are not effective enough at constraining risk. Some degree of independence from political pressure is helpful in carrying out these tasks, but they may not lend themselves to the same arms-length relationship to elected representatives as does monetary policy.

The conduct of monetary policy has enjoyed considerably more, but still limited, independence. Within monetary policy, it is useful to distinguish goal from instrument independence. Goals for policy are and should be set in the democratic process by elected representatives. But independence is critical in the setting of the instruments to achieve these goals. Central banks should be held accountable for outcomes, not inputs. Instrument independence is necessary to overcome the short-term perspective of politicians, who are more interested in boosting growth for the next election and less focused on the longer-term inflationary consequences of such actions; across time and countries there is plenty of evidence that less independence is correlated with higher inflation.

Even instrument independence not absolute. Instrument settings will always be subject to political pressure and discussion. Moreover, some control is exercised through the appointments process, which for the Chairman occurs every four years. But an independent central bank—one that has been insulated from these pressures--doesn’t need to follow the politicians’ instructions; it should resist where those desires are inconsistent with its own views of how to achieve the objectives it has been given.

In considering whether Federal Reserve independence is likely to be threatened by the nature and aggressive character of its recent actions it’s important to keep in mind that there is no necessary connection between recent actions and future loss of independence. This is a decision for Congress to make legislatively, and it needs to understand the costs and benefits from any erosion of independence. Moreover, concern about a potential mistake by Congress in this regard is not a reason for the Federal Reserve to hold back on using the tools Congress has given it to accomplish the objectives Congress has set. The Federal Reserve needs to keep explaining why it considers its actions to have been consistent with furthering its objectives, and that that any fiscal risk incurred or credit allocation affected by its actions has been necessary to achieve its legislated objectives and has been a temporary function of an extraordinary situation. We can see from what is going on in Japan right now that perceptions of timidity and caution also have the potential to threaten independence.

But a number of risk factors suggest extra vigilance will be called for over coming years to preserve the appropriate degree of Federal Reserve independence. First, an era of polarization of political discourse has not proven conducive to a reasoned discussion of monetary policy and the pros and cons of independence. Exhibit one in this regard would be the debates in the Republican primaries with candidates competing as to how rapidly they would “fire” Ben Bernanke, with one characterizing a policy disagreement as “almost treasonable”. Also discouraging was the unprecedented letter from Republican congressional leaders to the Federal Reserve in September 2011 trying to dictate an instrument setting—the management of its portfolio. And, as I’ll underline in a second, we haven’t yet heard from the forces that might eventually be aroused by exit from these policies.

Second, the Federal Reserve has had some powers trimmed in Dodd-Frank, suggesting an erosion of trust and deference by lawmakers. The restrictions apply to its authority to lend to non-bank institutions under 13-3 of the Federal Reserve Act, and include an obligation to get the approval of the Secretary of the Treasury even for widely available facilities. In addition, against the recommendation of the Federal Reserve, the Congress mandated the publication of the names of all borrowers at the discount window—bank and nonbank-- no later than two years after they borrow. So far, the instrument independence of the Federal Reserve in monetary policy per se has not been abridged in any way, but it may be that the Federal Reserve’s views carry less weight than they did before the crisis.

Third, although in recent years the political blowback mainly has come from those who say they are worried about inflation, the major challenge to independence is likely to come from those concerned about unemployment as the Federal Reserve exits from unconventional policies. At some point the Federal Reserve will need to tighten policy to keep inflation from rising persistently above its price stability target. It will need to raise rates and begin returning its portfolio towards its prior plain vanilla size and composition. The turn toward tightening is always a difficult decision—and subject to second-guessing in the political sphere—but it will be even tougher after long period of weak growth and unprecedented policy actions.

It will be a complex exit involving many steps—with lots of opportunity for kibitzing and objecting over a long period. It will ultimately involve a sharp correction in long-term rates—a reversal of a negative term premium as well as upward adjustment in expected short-term rates. It will entail withdrawal of special support for the mortgage market. As long-term rates rise the Federal Reserve will have mark to market loses on its balance sheet. These loses are not a threat to the Federal Reserve’s ability to tighten or its independence so long as cash flow is positive, but the loses could be used as a political weapon. The main tightening tool will be increases in the interest rate paid to banks on their deposits at the Federal Reserve, further damping Federal Reserve profits; this is a tool well known in other jurisdictions, but is new for the US. The size of the portfolio shouldn’t impede ability to tighten, given this new tool, but a huge volume of reserves could make control over the federal funds rate less precise than it has been in the past. Finally, in light of the apparent inability of the Congress and administration to deal with longer-term budget issues, the rise in rates could be occurring in context of still-unsustainable path for budget and debt, and higher rates will underline that issue and make it worse. This will be another source of unhappiness in political sphere.

Fourth, the Federal Reserve, like many other central banks, has been given added responsibilities in regulation and supervision. These responsibilities include a key role in macroprudential regulation, with responsibility for protecting the overall stability of the financial system. Carrying out this regulation already involves a differential impact on some organizations—those identified as systemically important. It could also entail tightening up when credit is growing too fast and imbalances are seen to be developing—another form of taking away the punch bowl as the party gets going—for example through raising the countercyclical capital buffer under Basel III. This will not be popular with those drinking the punch. In the years leading up to the crisis we saw considerable political resistance to even mild forms of tighter policy, for example with respect to commercial real estate lending. The risk is that greater scrutiny and criticism of this aspect of Federal Reserve activity could spillover to monetary policy. It is important to retain the bifurcation—the differences in governance and accountability for regulation and monetary policy.

But macroprudential policy could also protect monetary policy independence. It reduces the need for the Federal Reserve to use monetary policy to deal with bubbles, imbalances, or a build up of leverage. It now has another tool to apply to these. Monetary policy can be focused on price stability and maximum employment and more readily held accountable for those less diffuse goals than for “financial Stability”. More focused goals and accountability should support retaining monetary policy independence.

The most immediate threat to appropriate independence now would seem to be the proposal to allow GAO to audit of monetary policy—to remove the exemption for monetary policy that has existed since the 1970s. The expanded GAO audit authority would be another avenue to bring pressure on the Federal Reserve’s monetary policy—perhaps trying to delay actions pending a GAO study. Of course, such pressure can and should be ignored when the Federal Reserve is convinced it is doing the right thing to accomplish its legislated objectives. But extending the GAO audit moves the needle, however slightly, in the wrong direction when it will be important to protect the Federal Reserve’s instrument independence for exit. And it erodes that distinction between the governance of regulatory and monetary policy functions that seems so useful to make.

Federal Reserve monetary policy independence will be critical to preserve over next few years. There’s just too much history behind the concern that less independence leads to higher inflation over time. I hope all economists can agree on this—whatever they think of the actual policy actions that have been undertaken. The views of economists could be important in any discussion of this subject that might occur.

Authors

Donald Kohn

Publication: American Economic Association Annual Meeting

Image Source: © Jason Reed / Reuters

Monetary Policy in 2012: Further Disappointments in Growth; Further Innovations in Monetary Policy

Donald Kohn — Thu, 20 Dec 2012 14:09:00 -0500

Economic growth again disappointed in 2012. Around this time in 2011, the policymakers at the Federal Reserve were predicting the economy would grow in 2012 around 3 percent or a bit above; it now appears that economic growth this year will be 2 percent or a bit below. Nonetheless, the unemployment rate did fall a little more than Fed policymakers were predicting—from 8.5 to 7.7 percent—but this was not as good news as it seems because the drop was due to disappointing productivity growth and people dropping out of the labor force, in part as they grew discouraged looking for work.

Headline inflation numbers reflected the rise and fall of energy and other commodity prices in 2012, but considerable slack in the labor market and the economy more generally kept a lid on price increases. Wage and compensation growth remained very sluggish—real wages and unit labor costs for businesses were about unchanged over the year—reflecting the intense competition for jobs. Inflation actually slowed over the year, falling from 2.4 to 1.7 percent overall on the Fed’s preferred PCE chain price index (through October, latest data available) and from 1.9 to 1.6 percent for the core measure that abstracts from volatile food and energy prices.

With inflation subdued and showing no signs of picking up, unemployment still well above the Federal Reserve’s estimate of its long-term sustainable value, and concerns intensifying that cyclical unemployment could turn into structural unemployment permanently reducing the economic potential of the U.S. economy, the Federal Reserve kept its policy focus firmly on what it could do to boost growth to improve labor market conditions more quickly. In the past, under conditions like these, it would have lowered its target federal funds rate, and that action would have reduced intermediate and longer-term borrowing costs, raised asset prices and weakened the dollar, all three channels inducing businesses and households to buy more U.S. produced goods and services. But short-term interest rates are already at zero, so the Federal Reserve must operate more directly on intermediate and longer-term rates, which in turn should feed through to asset prices and the dollar as well as lowering borrowing costs. It has developed two techniques to do this: buying longer-term securities; and stretching out the time that market participants expect short-term rates to be near zero by giving guidance on how long the Fed itself expects short-term rates to remain at these extraordinarily low levels.

It used both of these techniques in 2012, adding innovative spins late in the year. Importantly it started the year by spelling out a bit more clearly its approach to pursuing its dual legislative objectives of “maximum employment and stable prices.” Two points were critical: First, it explicitly adopted a long-run inflation target of an increase of 2 percent in the PCE chain price index; it was hoping that the target would help to anchor inflation expectations more firmly and thus would enable it to adopt more aggressive policies to boost employment without endangering achievement of its price stability mandate. Second, it enunciated a “balanced approach” to pursuing its two objectives such that if they ever appeared to be in conflict they would give greater weight to the goal they were missing by more, taking more time to achieve the other goal. In the current context the “balanced” approach implies that if inflation is expected to run a little over target while unemployment is still quite high they wouldn’t withdraw policy accommodation right away but would approach the price stability goal slowly while continuing to make faster progress on unemployment.

Through the first nine months of the year, the Federal Reserve extended policies and techniques it had adopted in 2011 to reduce longer-term interest rates. It continued the maturity extension program popularly known as “Operation Twist” in which it sold shorter-term treasury securities and bought longer-term Treasury debt to put downward pressure on long-term rates. And it adjusted its estimate of how long near zero short-term rates would need to be maintained from “at least through mid 2013” to “at least through late 2014.”

Then at its September, October, and December meetings the Federal Reserve became more aggressive and more innovative. It restarted its program to expand reserves and its own balance sheet by buying mortgage backed securities in order to reduce mortgage rates and help the housing market and by converting its “twist” acquisition of Treasury securities into outright purchases financed by reserve creation. And it extended its expected period of near-zero interest rates to “at least mid 2015.” But in addition it innovated by tying the two types of policies—purchases and low interest rates—to evolving economic conditions rather than to a given amount of purchases or a date for raising rates. It will continue its purchases so long as the outlook for the labor market does not improve substantially. And it will not consider raising rates so long as unemployment is above 6.5 percent while projected inflation is below 2.5 percent, though to be sure they left themselves some wiggle room by noting that they will be looking at a variety of indicators of labor market tightness and inflation pressures.

The shift to economic conditions and the particular economic conditions chosen to act as thresholds for considering changing policy have several important implications. They reinforce the primary focus on labor markets—the maximum employment part of the dual mandate in the current and expected circumstances of still-high unemployment and still-low inflation. To that end, they imply continued downward pressure on interest rates through purchases so long as the labor market doesn’t look like it will be approaching a much better place in the future. And they make more explicit the willingness to take inflation risks—indeed to tolerate inflation a little over the new 2 percent target for a time —in order to get that labor market improvement, before raising interest rates. One of the objectives appears to have been to reassure households and businesses that the Federal a Reserve will not tighten prematurely and that they can plan on the Fed continuing to support growth for some time. And the shift to economic conditions implies that markets will be able to adjust interest rates with less explicit guidance from the Fed because market participants should better understand how the Federal Reserve itself will respond to evolving economic conditions.

Although financial market reactions to these late-year announcements were muted—except for a notable decline in mortgage rates-- most observers agree that the actions of the Federal Reserve have been transmitted through the financial markets in the forms of easier financing conditions for a variety of borrowers and of higher asset prices. As such they should help to boost spending at least a little, though the extent of the improvement is not expected to be large. It’s difficult to see their effect on confidence in an environment that is dominated by discussions of fiscal policy and where the difficult negotiations between the administration and Congress appear to have had a negative effect on household and business attitudes.

As we exit 2012, the growth outlook is highly dependent on the outcome of those fiscal negotiations as well as on developments overseas, where many industrial economies are stagnant or in recession. The Federal Reserve has spent 2012 laying out a framework for monetary policy to respond to evolving economic conditions, whatever the source of change. The consensus economic forecast for 2013 is for another year of moderate growth and only slow progress in lowering the unemployment rate, even with a favorable resolution of the fiscal difficulties that reduces uncertinaty while not front-loading restraint. Under these circumstances we could expect the Federal Reserve to continue buying securities and keeping rates at very low levels for some time. As to whether the fertile brains of Chairman Bernanke and his colleagues will come up with further innovations to speed this process along, we’ll just have to stay tuned.

Authors

Donald Kohn

Image Source: © Brendan McDermid / Reuters

How Long Will it Take to Get to 6.5 Percent Unemployment?

Michael Greenstone and Adam Looney, The Hamilton Project — Fri, 14 Dec 2012 11:45:00 -0500

Last week, the Fed announced its intention to keep interest rates at historic lows until the unemployment rate drops below 6.5 percent, so long as projected inflation remains below 2.5 percent. The Fed has now explicitly linked its interest-rate policy with future economic conditions.

But how long it will take to reach 6.5 percent?

In today’s analysis, The Hamilton Project presents a range of estimates of when the unemployment rate will reach the Fed’s benchmark. The chart below shows how long it will take to reach an unemployment rate of 6.5 percent based on different assumptions of monthly job growth.

Predicting when the economy will get back to 6.5 percent unemployment depends on many factors. For example, if monthly job growth averaged 150,000, the unemployment rate would not reach 6.5 percent until 2018. Employment growth—as measured in the household survey—has averaged about 220,000 jobs per month over the past year. Continuing at this pace, it would take about two and a half years to get back to 6.5 percent [1].

While the Federal Reserve has set its benchmark at 6.5 percent, that is significantly higher than the unemployment rate in the year before the start of the Great Recession, which never exceeded 5 percent. Returning to pre-recession normal will necessarily take even longer.

The Hamilton Project’s “jobs gap” calculator allows you to explore how long it will take to return to the pre-recession employment rates, rather than unemployment rates, at various levels of job growth each month. The jobs gap calculator can be found here, and the state-by-state breakdown of the jobs gap, updated each month, can be accessed here.

[1] Because the unemployment rate is defined as the share of the labor force without a job, changes in the labor force—the number of American either working or actively searching for work— have important implications for the unemployment rate. Consequently, these estimates depend critically on assumptions about changes in the labor force. Our calculations use the 2011 estimates from the Congressional Budget Office of labor force participation over the next decade, which are subject to uncertainty; to the extent that the labor force grows more quickly over the next few years, the length of time required to return to 6.5 percent will be longer (and the converse is true if labor force growth is slower).

Michael Greenstone is the director of The Hamilton Project and Adam Looney is its policy director. For more about the Project, visit www.hamiltonproject.org.

Authors

Michael Greenstone and Adam Looney, The Hamilton Project

Image Source: © Kevin Lamarque / Reuters

Unconventional Times, Unconventional Measures: A Conversation with Federal Reserve Board Governor Jeremy Stein

Thu, 11 Oct 2012 10:00:00 -0400

Event Information

October 11, 2012
10:00 AM - 11:00 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

Amid a weak and uneven economic recovery, the Federal Reserve announced in mid-September that it would undertake further large-scale asset purchases, sometimes known as “quantitative easing,” in order to provide additional support to the U.S. economy. With its traditional tool of monetary policy—the federal funds rate—at close to zero, the Federal Reserve has entered new policy territory by implementing several waves of quantitative easing over the last four years. While such programs are designed to ease financial conditions and, in turn, foster demand and increase employment, they are thought by some to carry important risks. As a result, they have been the source of some controversy.

On October 11, Economic Studies at Brookings hosted a discussion with recently appointed Federal Reserve governor, Jeremy Stein. Vice President and Co-Director of Economic Studies Karen Dynan gave introductory remarks, and Brookings Senior Fellow Donald Kohn moderated a question and answer session. Governor Stein also took questions from the audience.

The event was broadcast live on C-SPAN »

Read Jeremy Stein's prepared speech at federalreserve.gov »

Video

Consensus on Monetary Policy at the Federal Reserve

Sarah A. Binder — Thu, 13 Sep 2012 12:00:00 -0400

In a town so accustomed to polarization, today’s consensus at the Fed for a major change in monetary policy was remarkable. As Ben Bernanke put it, “The basic ideas are broadly espoused inside the committee.” Although it will be five years before we get to see the transcripts of this week’s deliberations inside the FOMC, we can get a window onto the shifting views inside the Fed by exploring the economic projections released alongside the FOMC’s policy statement this afternoon.

In addition to its plan to engage in open-ended asset purchases, the Fed also said that it intends to keep its benchmark federal funds rate at nearly zero until mid 2015, extending its previous guidance that rates would likely remain low until late 2014. That consensus about extending its commitment to low rates belies a range of views within the FOMC about the appropriate date for raising rates. Thanks to the Fed’s relatively new communication policy, we now have four meetings-worth of FOMC projections, which include the views of all nineteen FOMC members about the appropriate timing for the Fed to begin to take away the punch bowl. I’ve arrayed the January, April, June and September projections to give a sense of the changing views within the FOMC that contributed to today’s change in policy.

Obvious from the chart is the shift in views within the FOMC that coalesced around the commitment to keep rates near zero into 2015—a marked shift from the previous distribution of views over the course of the year. Clearly, today’s policy change grew in part from the increasingly dovish outlooks of a large majority of the committee. In June, just six members thought raising rates should wait until 2015; today, thirteen members wanted near zero rates until mid 2015 or later. At the same time, the hawkish wing of the committee seems to have had its wings clipped, with just four members still thinking that rates should be raised this year or next.

As students of political institutions, we’d like of course to know more about how and why consensus in favor of a more aggressive Fed policy took root today. But the FOMC doesn’t leave sufficient footprints for us to say much more about the emergence of a supermajority for change. Judging from Bernanke’s comments today though, he waited far longer than a more autocratic chair might have deemed necessary. Indeed, he noted that the consensus across theFOMC was so broad, that “even as personnel changes going forward, this will be seen as the appropriate approach and we will have created a reserve of credibility we can use in subsequent episodes.” That line was probably the most important statement of the day, as it provided a glimpse of Bernanke’s strategy for addressing the intense and continuing criticism of the Fed: Build as deep and broad a consensus for aggressive Fed action, so that the Fed’s audiences will come to concur that the course of action is “appropriate”—even after Bernanke’s term as chair ends. Such confidence might be premature, but it suggests the hard challenge Bernanke has faced in leading the Fed in a polarized political environment marked by pockets of deep distrust of the Fed.

Authors

Sarah A. Binder

Publication: The Monkey Cage

Image Source: © Larry Downing / Reuters

Credible Commitments and the Federal Reserve

Sarah A. Binder — Tue, 04 Sep 2012 00:00:00 -0400

Political scientists, so far as I know, aren’t typically on the guest list for the Kansas City Fed’s economic symposium in Jackson Hole. (But honestly, who in their right mind would give up a trip to New Orleans in a hurricane for a weekend in the Grand Tetons?) Coverage of this year’s conference though reminds me that more attention could be paid to the political and institutional constraints under which the Fed makes monetary policy. I was struck in particular by coverage of a paper delivered in Jackson Hole by economist Michael Woodford. The paper assessed the effectiveness of alternative monetary policy choices for stimulating the economy, concluding that the Fed’s asset purchases and commitments to keeping inflation low through 2014 are largely ineffective (if not counter-productive in jump-starting and sustaining economic growth).

What struck me about Woodford’s paper was his call for the Fed to change the way it communicates about its future policies. The most recent statement from the Federal Open Market Committee (FOMC) states that the FOMC expects that economic conditions are “likely to warrant exceptionally low levels of the federal funds rate at least through late 2014.” Woodford and others criticize the Fed’s reliance on so-called “lift-off” dates for raising rates, arguing instead that when interest rates are already effectively zero, the Fed should commit to a particular policy path until after the economy has recovered. Many economists in this vein recommend that the Fed target nominal gross domestic product (NGDP), meaning that the Fed would keep rates low even after markets might otherwise expect the Fed to begin to tighten on the grounds of preventing inflation. Let the economy gather steam before raising rates, Woodford and many others argue, even if that entails allowing inflation to rise above the Fed’s self-imposed 2 percent target. A credible commitment to act differently in the future is said to be essential for jump-starting economic growth today.

Economists (and political scientists) have certainly written a great deal about the difficulty policy makers face in making credible commitments. In short, if policy makers have discretion to reneg on their commitments, no one will take their policy commitments seriously in the first place—undermining policy makers’ ability to create incentives for behaviors that they favor. But I’m struck that in all the recent discussion of the macroeconomic value of NGDP targeting (or other “results-based” monetary policy options) that the political and institutional feasibility of such action has been given short-shrift.

What constraints would the Fed face in credibly committing to something akin to NGDP targeting? Here is a partial list:

Bernanke might not still be chairman of the Fed’s Board of Governors come February 2014. Would a different Obama-appointed or a Romney-appointed Fed chair feel pre-committed to continuing the previous chair’s policy? Woodford argues that the FOMC publicly stating a commitment would make it “embarrassing for policymakers to simply ignore the existence of the commitment when making decisions at a later time.” I’m somewhat skeptical that central bankers would feel constrained by a previous Fed’s policy commitment if (for example) they believed it was ineffective or otherwise undesirable going forward.
Even if Obama is re-elected and Bernanke agrees to serve a third term, there is no guarantee that a Bernanke committed to NGDP targeting could secure confirmation again. Certainly a GOP-led Senate would have second thoughts about confirming a nominee committed to allow a little inflation to generate growth, and a Democratic-Senate might be unable to secure sixty votes on confirmation. At 70 votes for confirmation in 2010, Bernanke would not have a lot of votes to spare.
The federal structure of the Fed all but guarantees a diversity of hawks and doves on its monetary policy committee. And given turnover in the presidencies of the Fed’s regional banks and the rotating scheme by which the bank presidents alternate as voting members of the FOMC, the continuity in membership necessary for sustaining a credible commitment to a certain policy course might well unravel—assuming it could be cobbled in the first place.
More problematic, as many economists have noted, the Fed’s reputation today has been built on its success fighting inflation over the past thirty years. That same reputation makes it harder to credibly commit to allow inflation to rise above a level at which alarm bells would normally ring for the Fed to begin tightening. We might think of this as the Fed’s path-dependence problem: Past policies raise the cost of changing course in the future—making some policy alternatives far more costly and thus less likely than others. NGDP targeting- or other results- based targeting—seems likely to entail such reputational costs that the Fed might be unwilling to bear.
Finally, the Fed is ultimately a creature of Congress. As such, the Fed would be unlikely to adopt a policy if it threatened to raise the wrath of one party’s congressional overseers. Even if many Democrats might welcome more aggressive stimulus from the Fed, a policy commitment to target economic growth would surely raise GOP hackles on the Hill—where Republicans have already voted for more invasive monetary policy audits and called for abolishing the Fed’s dual mandate. To be sure, partisan polarization might preclude legislative agreement to limit the Fed’s discretion. But polarized parties also make the Fed’s job harder, since critics outside the Fed help to amplify dissent within the FOMC.

Maybe NGDP targeting is going nowhere, and thus consideration of the Fed’s political or institutional capacity to embark down such a path is besides the point. But some Fed watchers detect movement in the FOMC towards tying monetary policy more closely to improvements in the economy, while others note that such policy prescriptions are now “very close to the center of the profession of monetary policy.” Whether the Fed will have the institutional and political capacity to embark convincingly down and stay on such a path remains an open question.

Authors

Sarah A. Binder

Publication: The Monkey Cage

Image Source: Brendan McDermid / Reuters

Is Bernanke’s Fed Poised to do More for the Economy?

Sarah A. Binder — Wed, 20 Jun 2012 00:00:00 -0400

Watching Bernanke’s press conference this afternoon at the close of the FOMC’s June meeting, I couldn’t help but wonder how economists could be so sure that more aggressive Fed action is just around the corner. As one prominent economist tweeted, “I read the Fed as saying: ‘One more bad jobs report, and we’ll do more.’” But it struck me after watching Bernanke and scanning today’s FOMC’s projections that the barrier to more aggressive easing by the Fed might remain high—even as FOMC participants today downgraded their own forecasts for growth and inflation over the next three years.

So, with the caveat that I’m a political scientist (not an economist or a seasoned Fed watcher) who thinks about the Fed as a political institution, a few thoughts on the Fed and its seemingly timid response to a still ailing economy:

First, thanks to the Fed’s new communication policy, we now have three meetings-worth of FOMC projections, which include the individual views of FOMC members about the appropriate timing for the Fed to start ramping up the federal funds rate. I’ve arrayed together the January, April, and June projections to give a sense of the incremental shift underway on the FOMC:

The size of the FOMC’s hawkish flank (blue and red bars favoring rate increases in 2012 or 2013) has not changed (nor presumably its makeup). But the dovish flank of the FOMC (green, purple and teal bars favoring rate increases only in 2014 or later) has grown. Granted, the FOMC in June was finally at full strength, with two new governors (Stein and Powell) adding their projections to the mix. We don’t know of course whether Powell and/or Stein joined the 2015 group, or whether one or two of the April 2014 voters changed their views. Either way, the expanding dovish wing of the FOMC conceptually makes it easier for Bernanke to lead the FOMC to do more at a future meeting. Still, the internal opposition to further and longer policy easing remains entrenched on the FOMC. Outnumbered, to be sure, but it’s been outnumbered all year. Either that flank constrains Bernanke from doing more, or he just isn’t yet convinced that the data warrant a more aggressive policy response. (If the latter, the size of the dovish wing might not matter.) Still, neither interpretation suggests that a more assertive Fed is just around the corner—even if Bernanke promised today that “if we don’t see continued improvement in the labor market, we will be prepared to take additional steps if appropriate.”

Second, Bernanke’s promise that the Fed is prepared to do more (“if appropriate”…) in face of a weakening labor market would run the Fed straight into a collision course with the fall presidential campaign. The next scheduled meeting ends on August 1, followed by mid September and late October meetings. Bernanke strenuously (and appropriately) insists that the Fed is non-partisan. But it strikes me as putting the Fed on tenuous ground if it moves aggressively in the run up to a presidential election that will be fought over the state of the economy. To be sure, acting in that electoral context would show the Fed’s mettle, a signal that it won’t be cowed by partisan critics on the right who would surely object to more asset purchases or other unconventional policies. But it strikes me as potentially too damaging to the Fed’s reputation if it moved to juice the economy in the run up to an election. John Cassidy from The New Yorker argued today that the Fed is “destined to become an important player in the election, and quite possibly a lightning rod.” Perhaps true, but the Fed’s credibility relies on its reputation for independence—which would be challenged all over again if it adopts aggressive easing policies this summer or fall. That said, the six month extension of Operation Twist conveniently runs out after the election—perhaps allowing the Fed to dodge partisan critics until after the electoral dust has settled.

Authors

Sarah A. Binder

Publication: The Monkey Cage

Image Source: © Kevin Lamarque / Reuters

Confirming by Supermajority: Another Look at Today’s Fed Nominations

Sarah A. Binder — Thu, 17 May 2012 15:41:00 -0400

The Senate readily confirmed Jerome Stein and Jay Powell to the Board of Governors of the Federal Reserve this afternoon, with each securing 70 or more votes for confirmation. With these two new governors, the Fed returns to its full complement of seven governors for the first time since 2006. Obama’s willingness to pair a Democratic and Republican nominee—coupled with the harsh glare of the spotlight this week on J.P. Morgan’s risky business—likely helped to propel the agreement by Senate Democratic and Republican leaders this week to bring the pair to the floor for confirmation votes—even over the earlier objections of Senator David Vitter who had single-handedly blocked the road to confirmation.

Republican Lamar Alexander went to the floor today to herald the Senate’s decision to hold confirmation votes, noting that Republican senators had restrained themselves from fulling exercising their procedural rights in these cases. There was much to admire in Alexander’s frank discussion of the difficulties of legislating in a partisan Senate. But before we get too carried away with patting the Senate on its back for a job well done (Powell’s seat after all had been vacant for six years, Stein’s for over a year), it’s worth pausing a moment to think about the process by which the Senate moved to the confirmation votes. Majority leader Harry Reid had filed a cloture motion earlier this week. Instead of following through with the time consuming cloture process, the Senate agreed unanimously yesterday (i.e. with Senator Vitter’s consent) to bring the nominations directly to the floor for up or down confirmation votes. Vitter’s price for allowing the Senate to hold confirmation votes was to require sixty votes to confirm. Ordinarily of course confirmation requires only a simple majority vote, even if sixty votes are sometimes first required to end debate on the nomination. (In other words, Senator Alexander’s claims notwithstanding, we might wonder whether Republicans restrained themselves from exploiting their parliamentary rights in these cases.)

Negotiating unanimous consent agreements (UCAs) that require sixty votes—when a simple majority would suffice under the rules—is not entirely new. As the cracker jack Senate experts at the Congressional Research Service have noted here and here, Senate leaders have increasingly resorted to negotiating such agreements over the past couple of years. (See also Steve Smith’s treatment of the new practice.) Although there is precedent for imposing a sixty vote adoption threshold for nominations, sixty vote requirements are more commonly imposed within UCAs on amendments.

Why is this important? To be sure, in some ways the particular procedure employed does not matter: Both cloture and these negotiated UC agreements require sixty votes. From the majority leader’s perspective, however, negotiating sixty votes allows the Senate to avoid the time-consuming, several day cloture and post-cloture periods. In other words, the UC allows the Senate to proceed more expeditiously without asking opponents to give up their procedural rights to delay or block the Senate from moving forward. The UC in such cases also guarantees a direct vote on substance rather than a procedural vote on cloture, which may be attractive to senators. And in situations in which the minority seeks a vote on a preferred amendment, negotiating a sixty vote adoption threshold protects the amendment from being tabled summarily by the majority without coming up for a direct vote. In other words, both majorities and minorities often have good reason to consent to these negotiated sixty vote agreements, even if they doubt they will muster the requisite sixty votes. This new practice, in short, improves the Senate’s ability to legislate, may sometimes bolster the majority party’s ability to pursue its agenda on the floor, and provides a solution to the Senate’s knack for tying itself into procedural knots.

For nominations, however, I’m not so sanguine about the practice. Today’s procedural solution imposes a supermajority threshold for confirming presidential appointees, even in situations in which opponents cannot muster 41 votes to block cloture. Obama appointee Judge David Hamilton secured 70 votes for cloture, but just 59 for confirmation; Bush appointee Justice Samuel Alito secured 72 votes for cloture, but just 58 for confirmation. Granted there are not very many nominees who secure cloture but are then confirmed with fewer than 60 votes. And it seems not to have affected today’s outcomes (in part because they were bundled as a bipartisan deal). Still, routinizing supermajorities for future nominations seems to me to be a step in the wrong direction. Finding ways to trim, rather than to enhance, the already formidable powers of Senate minorities strikes me as a higher priority.

Authors

Sarah A. Binder

Publication: The Monkey Cage

Image Source: Jonathan P. Larsen

The Case for Preserving the Federal Reserve’s Dual Mandate

Alice M. Rivlin — Tue, 08 May 2012 15:49:00 -0400

In testimony before the House Financial Services Committee, Alice Rivlin addresses proposed bills to restrict the Federal Reserve's policy-making actions.

Chairman Paul and Ranking Member Clay:

I am happy to have this opportunity to testify before the subcommittee as you consider a diverse set of bills designed to alter the role, structure, or functioning of the Federal Reserve. I will focus my brief remarks this morning on the importance of preserving the Federal Reserve’s dual mandate to target both maximum employment and price stability. I believe that the dual mandate has served the United States well, and that it would be a mistake to restrict the Fed’s policy actions to fostering stable prices alone, as proposed by Mr. Brady in HR 4180 and Mr. Pence in HR 245.

I would like to make clear at the outset that I believe a strong, independent central bank is essential to keeping the United States economy functioning as productively as possible without unnecessarily costly swings in economic activity. Market capitalism has proven its ability to produce goods and services efficiently and deliver a rising standard of living, but it is prone to instability. Monetary policy, along with fiscal policy, can help moderate booms and busts, although it cannot erase the business cycle. Leaning against the economic winds, however, often involves unpopular actions, such as raising interest rates as a boom gathers excessive steam. There is always huge uncertainty about how the complex machinery of the economy is actually working and what results monetary policy can expect to achieve. Nevertheless, chances of successful monetary policy are highest when these difficult decisions are delegated to a group of qualified, experienced people, who are as insulated as possible from political pressures to please the public in the short run. Without a strong independent central bank functioning to mitigate economic and financial instability, the United States would have a weaker, far more chaotic economy and lose its leadership position in the global economy.

The objective of economic policy—including monetary policy—should be a rising standard of living for most people over the long run. That means maximizing sustainable economic growth and productive employment. Controlling inflation is a crucial element of the larger objective because high and, especially, rising inflation is a serious threat to sustained growth. The expectation of rising prices distorts both consumer and investor behavior and can even turn into a destructive, self perpetuating hyperinflation. Hence, an essential prerequisite for steadily increasing prosperity is a widespread, firmly anchored expectation that reasonably stable prices will prevail in the future.

Hence, I believe the dual mandate is simply a reflection of what average citizens ought to expect their central bank to do: Let the economy create as many jobs as possible, but don’t let inflation interfere with that job growth. Economists translate that common sense exhortation into a monetary policy aimed at keeping the economy as close as possible to its long-run potential growth, without seriously overshooting in either direction. This idea is encapsulated in Pro. John Taylor’s famous rule that prescribes easing or tightening when observed economic growth appears to be deviating from potential in either direction.

The problem for the Fed’s decision makers is that potential growth is not observable, because it depends on trends in productivity growth, which can shift unexpectedly. In the stagflation of the 1970s, hindsight indicates that monetary policy makers overestimated potential growth and did not tighten soon enough to avoid the acceleration of inflation at the end of the decade. The aggressive tightening of monetary policy in 1979—and the deep recession of the early 1980s that followed—might have been mitigated if the Fed had acted more aggressively sooner. In the 1990s, when I was at the Fed, we faced a happier version of the same uncertainty. Unemployment had fallen to levels that past experience indicated could trigger inflation, but inflation was actually falling. We held off tightening on the presumption, which proved correct, that accelerating productivity growth had raised potential growth and reduced the risk of inflation.

Partly thanks to the Fed, the late 1990s illustrated the benefits of very tight labor markets without significant inflation. Marginal workers found jobs, acquired skills, and work experience, while firms had strong incentives to retain workers by training them, using their skills more effectively, and moving them into better paid jobs. We also had appropriately tightening fiscal policy that balanced the budget—a feat far easier to accomplish in a strongly growing economy. The sooner we get back to those conditions, the better!

But the late 1990s also illustrated the inadequacy of the Fed’s toolkit in response to asset price bubbles. Some have criticized the Fed for not tightening monetary policy in response to “irrational exuberance” in the dotcom stock bubble of the late 1990s. But raising interest rates enough to prick that bubble sooner would probably have tipped the economy into recession, punishing workers and companies across the country for no good reason. Influencing the federal funds rate through open market operations is simply not an effective way of calming an asset price bubble. That lesson had to be learned again in the far more dangerous housing price bubble that gathered steam in the 2000’s and whose bursting precipitated the financial crash of 2008 and the ensuing Great Recession. Arguably the Fed kept interest rates too low too long, exacerbating the housing bubble, but interest rates were not the main cause of the catastrophe, nor could monetary policy alone have averted it. Among multiple culprits, I fault the Fed for not using its regulatory powers, in conjunction with other regulators, to raise underwriting standards for mortgage lenders, punish predatory lending, and rein in excessive financial leverage. While we should not have needed a catastrophe to learn this lesson, the Dodd-Frank Act now gives the Fed and the Financial Stability Oversight Council (FSOC) responsibility for financial stability and new tools with which to help achieve it.

The dual mandate is not inconsistent with strong emphasis on controlling inflation when appropriate or even with an explicit target for inflation. Indeed, last January the Fed confirmed a long run inflation goal of two percent. Operating under the dual mandate the Fed has successfully controlled inflation for three decades. To change the language of the law to imply that the Fed’s only concern should be inflation would send a misleading signal to a public rightly concerned with jobs and growth, as well as inflation. It would imply that inflation is serious current threat to American prosperity, which seems to me unwarranted.

Exclusive attention to inflation and firmly announced inflation targets served central banks well in the last century, especially in small open economies that could ill afford importing inflation through swings in their currencies. But it would be ludicrous for the United States to put sole emphasis on inflation now, when we have slack labor markets and substantial excess capacity in most economic sectors. Some have urged the Fed to try to create more inflation in the current situation, but that would be hard to achieve, even if it were desirable. Our economy is far less inflation prone than it was in the 1970s. It is more flexible, less dependent on energy prices, has easy access to more sources of supply in the face of domestic prices increases, no longer has wages dominated by multi-year indexed labor contracts, and benefits from expectations that reflect 30 years of reasonably stable prices. That recent oil price shocks have had so little effect on core inflation is evidence of lower inflation risk than the 1970s.

What we need now is a continuation of accommodative monetary policy plus fiscal policy that combines additional investment in long run growth and jobs with credible long-run action to stabilize the debt. In short, monetary policy as executed by the Fed under the dual mandate has a positive track record and is currently appropriate. I would urge the Congress not to tamper with legislative language that has served us well.

Thank you for your attention. I would be happy to answer questions.

Authors

Alice M. Rivlin

Publication: House Financial Services Committee

Image Source: Jason Reed / Reuters

How Has Monetary Policy Changed in the Last 25 Years?

Thu, 03 May 2012 16:42:00 -0400

Donald Kohn delivered the opening speech at the 25th annual conference of Vanderbilt's Financial Markets Research Center. The conference addressed changes in the financial markets over the years, asking whether financial markets have become more efficient and more stable or whether they are becoming more volatile, more complex and more costly.

Kohn provided background on how monetary policy has changed over the past 25 years. The conference's agenda and scheduled speakers are available at Vanderbilt's Financial Market Research Center's website.

Downloads

0503_monetary_policy_kohn

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Congress, the Federal Reserve, and the Federal Open Market Committee

Sarah A. Binder — Fri, 27 Jan 2012 00:00:00 -0500

Wednesday was a big day for the Federal Reserve and its chair, Ben Bernanke, as the Fed took new steps to better communicate its thinking about the future path of monetary policy. While most analysts are focused appropriately on the implications of communications as a policy tool for the Fed, I’m more interested in its implications for Congress’s relationship with the Federal Reserve. From this vantage point, Bernanke’s most important accomplishment this week is likely to be the Fed’s adoption of a formal long-run inflation target of two percent. Given that the Fed has a statutory “dual mandate” from Congress to achieve full employment in the context of price stability, the adoption of an explicit inflation target will no doubt pique the interest of lawmakers. The parties, not surprisingly, tend to have different views about the dual mandate. Many Republicans, seeking to limit the Fed’s policy discretion, favor limiting the Fed to a single mandate of price stability; the Fed’s unilateral move this week to designate an explicit inflation target might be welcomed by the GOP. Democrats, however, will likely be wary of any signals from the Fed that it prioritizes fighting inflation over reducing unemployment—even if Bernanke went to lengths yesterday to argue that the Fed remains committed to securing both the employment and inflation sides of its dual mandate.

I’ll return to this issue in a later post. For now, I want to highlight a smaller tool in the Fed’s new bag of transparency tricks. As shown above, the Fed’s innovations this week include the release of (anonymous) interest rate projections by the seventeen members of the Fed’s open market committee (FOMC). (“Transparency” only goes so far amongst central bankers.) The projections indicate FOMC members’ views of the appropriate timing of “policy firming”—that is, how long its members think that the Fed’s lending rate should be kept near zero. FOMC hawks, who fear a takeoff in inflation and thus favor an early increase in the federal funds rate, appear on the left; FOMC doves, who want to give the economy more time to recover and thus prefer to delay the increase in interest rates, appear on the right.

The Fed’s decision to reveal the rate projections of both the voting and non-voting members of the FOMC is novel. In the past, the public had to rely on the language in the policy statement issued after each FOMC meeting, a statement that reflects only the views of the voting members of the FOMC (which by statute excludes a rotating set of the twelve reserve bank presidents). Remarkably, in comparison to the Fed’s last meeting statement, yesterday’s statement was decidedly dovish: Approved by a vote of 9-1, the committee’s statement extended its commitment to keeping the federal funds rate near zero through “at least late 2014,” eighteen months longer than last year’s projection. Meanwhile, the rate projections themselves suggest a more diverse set of views across the FOMC membership: eleven doves prefer to stall tightening until 2014 or later while six hawks want to tighten before 2014. The dovish voting members are unrepresentative of the broader array of views across the FOMC.

Yesterday’s events suggest that the voting rules of the FOMC may be consequential for the shape of monetary policy. Those voting rules of course are set by Congress, which created the FOMC in 1933 and has subsequently amended its governance on a handful of occasions. Legislators continue to express frustration with the FOMC. Some House Republicans favor broadening the voting rights of the committee, allowing all of the bank presidents to vote at each meeting. (Bank presidents are said to be more hawkish than governors, though the evidence is mixed.) Had each of the FOMC members been eligible to vote this week, it would have been tougher for Bernanke to secure agreement on such a dovish policy outlook. No doubt, congressional Republicans will continue to push for the expansion of voting rights on the FOMC. In contrast, House liberals prefer stripping the bank presidents of their voting rights altogether. The array of rate projections amongst the members of the FOMC, however, should signal to liberals that the power of the doves can be augmented considerably by retaining voting rights for a rotating group of bank presidents. Granted, voting rotation will not always favor easing, as it does this year. Next year, the three FOMC uber-hawk bank presidents from Philadelphia, Dallas, and Minneapolis will rotate back into voting seats, no doubt pushing for earlier tightening of lending rates.

All that said, the current split party control of Congress and divided control of the branches limit the chances that Congress and the president will agree to any revisions to the Federal Reserve Act. Should Republicans win the White House and both chambers in November, however, the internal governance of the Fed—as well as its statutory mandate—might come into focus more sharply in Congress’s crosshairs.

Authors

Sarah A. Binder

Publication: The Monkey Cage

Monetary Policy in 2011: Unconventional and Necessary

Donald Kohn — Wed, 14 Dec 2011 10:34:00 -0500

In 2011, as in 2010, the Federal Reserve took “unconventional” steps to boost economic growth and speed a very sluggish recovery from the “great recession.” In the early part of the year the labor market seemed to be on an improving trajectory, with some substantial gains in employment in late winter. But by late spring, it was clear that the pace of economic growth had slowed. To some extent, temporary factors were responsible for the disappointing performance—the effects of the earthquake in Japan on auto supply chains and the sharp rise in energy prices, which ate into Americans’ spendable income. But the underlying pace of growth also seemed to be slower than expected and insufficient to reduce a still very elevated unemployment rate. Inflation was high for a time, but was expected to come down as energy and other commodity prices leveled out and then fell and as auto production ramped up, taking pressure off vehicle prices.

In its public pronouncements, the Federal Reserve was very clear that it thought that a variety of policy steps, for example in fiscal and housing policies, would be required to really get the economy moving. But it also saw itself as having scope to do more to help the recovery along, and in August and September it acted. In August the Federal Open Market Committee (FOMC) announced that it expected the federal funds rate to remain at its current extraordinarily low level at least through mid-2013; and in September it announced a "Maturity Extension Program" for its portfolio of Treasury securities whereby it would sell shorter-term securities and use the proceeds to buy longer-term securities.

Both of these actions helped to lower longer-term interest rates: The communication about rates by reducing market participants' views about the likely path of interest rates, or at a minimum lowering the odds on any tightening before mid-2013; the maturity extension (popularly known as Twist) by taking longer-term securities off the market, reducing the rates on these securities, and inducing their former holders to buy other long-term securities thereby spreading the fall in rates through the markets. Lower rates should boost spending by reducing the cost of borrowing to finance purchases, by bolstering the prices of equity and other assets so people are wealthier, and by reducing the foreign exchange value of the dollar making U.S. exports more competitive in global markets.

The actions were controversial. Three members of the FOMC dissented; they felt the steps were unnecessary, ineffective, and potentially counterproductive in that they would ultimately produce higher inflation. Those concerns were also prominent in political discourse; the Federal Reserve has been attacked quite vociferously by Republican candidates for president and the Republican congressional leadership took the unprecedented step of writing to the FOMC just before its September meeting urging it not to engage in the maturity extensions. Those dissents and "advice" clearly did not deter the FOMC, but they did keep it in the spotlight. At the same time, many economists and other commentators, focused on promoting a faster recovery, were making suggestions for monetary policy frameworks and intermediate targets that would encourage even easier policy for longer and loosen constraints from temporarily higher inflation. The sharp contrast in the policy positions being advocated highlights the difficulty of the policy choices and the challenges in explaining those choices to the public.

As 2011 draws to a close, the economy has shown some encouraging signs of slightly stronger growth, despite the bad news from the Euro area and the financial market volatility and risk aversion the problems there have imparted to global financial markets. Still, the obstacles to good growth remain considerable; in addition to European problems and continuing fiscal policy disarray here at home, the housing market remains in the doldrums and income growth for most households has been very weak. At the same time, inflation continues to abate. Thus before long the Federal Reserve could well be facing the same question it grappled with last summer: Is there anything it can do to help the recovery without endangering long-term price stability?

It's clear from the speeches of FOMC members and the minutes of FOMC meetings that a number of approaches are under consideration, falling into the two buckets we sampled last summer-communication to change expectations and portfolio adjustments to directly lower long-term rates. On the communication side, the FOMC seems to be contemplating being even more explicit about its expectations for the path of interest rates, making a more definitive commitment to an inflation target, and providing a fuller (and I'm sure it hopes more readily understood and accepted) explication of how its policy choices should help the country reach the Federal Reserve's dual objectives of stable prices and high employment. With respect to its portfolio, various FOMC members have raised the possibility of resuming purchases of mortgage-backed securities, hoping to help the housing market by reducing mortgage rates.

Meanwhile the Federal Reserve must prepare for the potential of even greater disruption from the problems in Europe. This fall it agreed with other major central banks to reduce the interest rate on the dollars it swaps with them. These swaps make dollars available to be lent out by foreign central banks to banks in their home countries or currency areas. European banks have faced mounting difficulties funding themselves in a variety of markets. The ECB has acted to make euros more readily available to them; the Federal Reserve's action should help the ECB supply dollars as well to slow the deleveraging process and associated tightening of credit conditions in Europe.

Stronger growth in the U.S. and more settled conditions in Europe would enable the Federal Reserve to begin to contemplate unwinding its unconventional polices and dimming the intense spotlight on its actions. Unfortunately, as 2011 draws to a close, that doesn't seem yet to be in the cards.

Authors

Donald Kohn

New Brookings Papers on Economic Activity

Justin Wolfers — Fri, 23 Sep 2011 00:00:00 -0400

The Fall conference for the Brookings Papers on Economic Activity recently concluded, and we’ve learned a lot about topics including: how long earnings losses persist after getting laid off in a recession; where policy can be most effective in helping small businesses grow and hire; how much extending unemployment insurance has impacted the unemployment rate during the Great Recession; the effectiveness of the Federal Reserve’s quantitative easing programs; and the different monetary policy paths of the central banks of U.S. and Sweden during the recent recession.

Let's start with a paper by the University of Chicago's Steve Davis and Columbia's Til von Wachter entitled "Recession and the Costs of Job Loss." The message of this new paper, is, quite bluntly, something we already knew — that losing your job sucks — but that it really, really sucks if you lose your job during a recession. The authors follow people who have lost their jobs as a result of a plant closing or some sort of general retrenchment—which is pretty much what we have been seeing these past few years—and then they follow these workers over a 20 year period. What they found is that not only does your income fall maybe 30% or 40% in the year in which you lose your job, but it actually remains 20% lower even 20 years later. So these workers are not just poorer the year of the lay-off, they are a whole lot poorer for a whole lot longer than anyone thought. They quantify this income loss and it's eye-popping: during economic good times, if you get fired your future earnings (its future value) falls by about $65,000. But during a recession, it could be twice that large — a loss of maybe $120,000.

The big message from Lars Svensson in "Practical Monetary Policy: Examples from Sweden and the U.S." is that central bankers make mistakes. Bear in mind, he is a central banker himself — Deputy Governor of the Swedish Central Bank (Sveriges Riksbank), so he has been at the table as they are making monetary policy over there, and he has also been closely following monetary policy here. Svensson not only says central bankers do indeed goof, but that they did over the past several years in response to the financial crisis and recession. Comparing the U.S. and Sweden, he says there has been a violation of what any central banker should do: if inflation is forecast to be below your target and unemployment is forecast to remain above your target, you should reduce interest rates. But neither Sweden nor, to a lesser degree, the United States, followed this policy.

The small business emperor has no clothes. OK, that's a bit stark, but let's dig into the findings of a paper by Erik Hurst and Benjamin Pugsley in "What do Small Businesses Do?" Policymakers in Washington are intensely focused on "small business" as the solution to our current economic woes. The research says there is really nothing there — the emperor has got no clothes. Once you look carefully at the data to see who the small businesses actually are, you see that they are not for the most part innovators, nor job creators. Small businesses are barbers, hairdressers, real estate agents and lawyers. They are not entering into these industries with any great goals of new patents or of new innovations — the things that would push economic growth in the future. Instead, the majority have no intention of growing or hiring. So what we need policy to focus on are not all small businesses but really a small subset — the entrepreneurs.

The extension of unemployment benefits has been controversial in recent times, and many are concerned that these benefits may have harmed the incentive for people to try to find work. But a new paper by Jesse Rothstein called "Unemployment and Job Search in the Great Recession" finds that these benefits haven't really impacted the unemployment rate much at all. By their estimate, perhaps it is 0.3 percentage points higher. Interestingly, Rothstein finds that at least half of that increase is probably due to people staying in the labor force, rather than dropping out. So the total effect on jobs it, is an even smaller effect. In fact, as we start to emerge from the recession, these extensions in unemployment insurance may even turn out to be beneficial: they have kept people in the pool of unemployed, rather than outside the labor force. When the jobs return, these workers are going to be in a position to get back to work.

And finally, we had a timely paper, given the Fed's most recent announcement of a new Operation Twist, that looks at how recent Fed action has impacted the economy. Arvind Krishnamurthy and Annette Vissing-Jorgensen analyze "The Effects of Quantitative Easing on Interest Rates," finding that these policies are not only effective for what they actually do to different interest rates, but that also the Fed can help the economy with words alone without taking action. The authors look at the first two episodes of the Fed's attempts to impact interest rates — QE1 and QE2 — and find that it is not just the Fed's buying of bonds, but it is the ability of the Fed to shape the expectations of the market that really drives the biggest effects of quantitative easing. Basically, if the Fed says 'we want long-run interest low and we have a big pile of money right here that we are going use to do that,' they ultimately don't have to use the money because the markets understand that they could always use that money if needed, and so long-run interest rates fall very quickly.

Authors

Justin Wolfers

Brookings: Topics - Federal Reserve System

The Fed's Trying To Get the Party Started, So Why All the Criticism?

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Would Congress Care if the Federal Reserve Lost Money? A Lesson from History

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Comments on “The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn’t Matter”

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Federal Reserve Independence in the Aftermath of the Financial Crisis: Should We Be Worried?

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Monetary Policy in 2012: Further Disappointments in Growth; Further Innovations in Monetary Policy

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How Long Will it Take to Get to 6.5 Percent Unemployment?

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Unconventional Times, Unconventional Measures: A Conversation with Federal Reserve Board Governor Jeremy Stein

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Consensus on Monetary Policy at the Federal Reserve

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Credible Commitments and the Federal Reserve

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Is Bernanke’s Fed Poised to do More for the Economy?

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Confirming by Supermajority: Another Look at Today’s Fed Nominations

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The Case for Preserving the Federal Reserve’s Dual Mandate

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How Has Monetary Policy Changed in the Last 25 Years?

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Congress, the Federal Reserve, and the Federal Open Market Committee

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Monetary Policy in 2011: Unconventional and Necessary

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New Brookings Papers on Economic Activity

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