- The leadership teams of each of Chair Warsh’s 5 task forces were announced today. They feature well known economists, former policy makers, business leaders, and prominent investors.
- While there were some fears of politicization of the task forces, they are made up of subject matter experts with substantial credibility in the relevant areas and seem likely provide substantial input and debate fodder for the FOMC.
- The press release‘s summation of the broad mandates for each task force is clear enough, even if some of the specifics are still unclear: “they will operate independently, with a mandate to follow the evidence, provide candid feedback, and produce rigorous findings for the Federal Open Market Committee.”
- Brief thoughts on each task force below (bold titles reflect the press releases naming).
Communications: Review how the Federal Reserve conveys policy deliberations and decisions amid uncertainty. The task force will be led by Peter Fisher (Univ. of Washington), Armino Fraga (Gavea Invesments and former BCB Governor), and Mervyn King (former BoE Governor). The group are very highly regarded former policy makers, who have a bias towards credibility concerns surrounding inflation and experiences in a wide variety of economic and financial crises. Warsh famously led a 2014-era review of the Bank of England’s communications after King left, which recommended a simplifying of the bank’s communication procedures around its meetings, and a reduction in the number of meetings per year from 12 to 8; there are some possible lessons there but Warsh Review largely brought the BoE toward the consensus of other DM central banks at the time. The Fed’s dot plot and SEP certainly stand out as unique policy communication products which could be reformed towards other central banks’ approaches but that would require substantial work to create buyin across the Fed system for such a large change.
Balance Sheet Policy: Examine the costs, benefits, and institutional implications of the Federal Reserve’s current balance sheet regime. Karen Dynan (Harvard), Raghuram Rajan (Univ. of Chicago, and former Governor of the RBI), and Jeremy Stein (Harvard, former member of the Fed Board). All three are leading macroeconomics with specializations in financial stability matters. Rajan has been more historically hawkish on the financial stability risks of central bank balance sheet expansion (listen here for a recent discussion) while Stein, in the shadow of the GFC, advanced a view that the liability side of the Fed’s balance sheet can “be enlisted to help mitigate the financial-stability risks associated with excessive private-sector maturity transformation” even as more traditional QE effects fade. Warsh has long been a critic of what he frames as the quasi-fiscal nature of the Fed’s QE/QT decisions; balance sheet policy shifts ultimately seem likely but the number of plausible parameters that could reasonably be tweaked in order to keep the
Data: Improve the quality and timeliness of real economic signals that inform the Federal Reserve’s policy judgments. Raj Chetty (Harvard), Doug McMillon (former CEO WMT), and Kevin Murphy (Univ. of Chicago). Chetty’s Opportunity Insights was an essential alt-data check during covid; leading WMT has certainly given McMillon a tremendous understanding of the private’s uses and limitations of data in real time, and Murphy is a leading microeconomist. This is one of the task forces on which I am most curious about the eventual recommendations for policy makers and how the Fed might expand its, already extremely broad, data collection and analysis capabilities, perhaps in concert with the corporate sector and communicate around a broader data set.
Productivity and Jobs: Assess the economic impact of new general-purpose technologies, including artificial intelligence, to inform the Federal Reserve’s policy judgments. Marc Andreessen (Andreessen Horowitz), Charles Jones (Stanford and Anthropic), and Asha Sharma (XBOX CEO, Microsoft Corp). The tech sector gets its task force. This task force’s immediate policy implications seem less clear but given the size of the AI boom and its potential productivity gains and labor market disruptions, it seems likely that the Fed will use their findings in framing their structural, if not meeting-by-meeting, views.
Inflation Frameworks: Revisit how the Federal Reserve understands and responds to the drivers of inflation. Greg Mankiw (Harvard, former Chair of the Council of Economic Advisors), Thomas Sargent (NYU, Nobel laureate), and William White (C.D. Howe Institute, former economic adviser, BIS). My first reaction upon seeing these names it that there’s an undercurrent of hawkishness and some degree of focus on the supply side, but that latter point is usually a role where the Fed is seen a ‘price taker’ far more than a driver of outcomes. Makiw has historically (here and here) been open to broader measures of inflation or nominal income targeting than a rigid inflation targeted might suggest, although the appropriateness of a some of these approaches in the current context seems less certain but they would tend towards some degree of flexibility but also provide a broader approach to ‘price stability’ over the course of the cycle which may hawkish at the present moment given the strength of nominal activity and incomes. Sargent is a giant in the field who’s seminal work on expectations ultimately won him the Nobel price (here); his post-covid commentary has tended to be quite hawkish (here). While looking through White’s recent work, one comment, which ties into nearly all of the current policy debates, stood out: “some hold out hope that an artificial intelligence revolution will raise productivity levels and GDP enough to avoid such problems… Somewhat counterintuitively, this means real interest rates rising to prevent current spending from increasing excessively in response to anticipated income gains. If one accepts this logic, then it was an error for Greenspan to lower rates in the late 1990s as productivity surged. Moreover, lowering rates today in the face of a similar shock might be even more dangerous. First, the productivity gains today are presumed, rather than actual as they were in the 1990s. What if they do not materialize? Second, the debt trap must still be reckoned with.”
