fed transparency

Buzz is growing about how the Fed’s promised new monetary-policy construct will do better than the old, failed FAIT.  Last week, Chair Powell offered a teaser, the august Group of Thirty told it what to do, and former Chair Bernanke told the Fed how to tell all about it.  Let’s hope the Fed indeed does better this time, but even if it does, Congress might well block the Fed from doing what it comes to think it must.  When the Fed releases its new plan in the rarefied precincts of Jackson Hole this August, it’s likely to disregard what a very skeptical Congress thinks about it, let alone what might then be done to it either on the Hill or by Mr. Powell’s successor.  Early warning signals show it will be a lot.

The Fed knows it’s at considerable political risk, but not all the ways political risk could strike it down.  Mr. Powell is of course keenly aware that President Trump thinks he’s “Mr. Too Late, a major loser.”  Anticipating still more political push-back, Mr. Powell tried to protect the Fed via a switcheroo early after the election, pulling the Fed back from climate-risk efforts and anything that smacks of reputational-risk supervision.  That may help, but the Fed has yet to reckon with how much Members of Congress want a complete monetary-policy reset forcing the Fed to rely on open-market operations as the principal mechanism of monetary-policy transmission.  Any new Fed policy construct that doesn’t shrink the portfolio, …