Opening the Fed’s doors to the public
The Boston Fed tower has stood guard on the edge of Boston’s Financial District for five decades, a fortress of finance looming over the commuters who race in and out of South Station.
Many people view the Federal Reserve in much the same way: impenetrable. But Boston Fed president and chief executive Eric Rosengren is doing what he can to break down the walls and throw open the doors.
The newest example: a Monday conference that drew panelists and audience members from the community to discuss the region’s economy. It was the latest stage in a nationwide series dubbed “Fed Listens” and reflects a broader effort by Rosengren and his colleagues in other parts of the Federal Reserve system to strip away the mystery of the once-enigmatic deliberations at the central bank.
Rosengren and the other members of the Federal Open Market Committee face a tough balancing act with their decisions on short-term interest rates: They need to be high enough to keep inflation in check, but low enough to sustain strong private-sector hiring.
To inform their decisions, the various committee members don’t just sit high in their towers, scanning spreadsheets and stock charts. They also draw from their researchers who reach out to business sources on a regular basis, to compile the “Beige Book” reports on regional economic conditions, and they turn to private sector advisers on Fed-affiliated councils and boards.
It’s a two-way street. The Fed also wants to be clear to the public about how it makes interest-rate decisions — the process that drives the cost of so many credit cards, auto loans, and home equity lines. Toward that end, current Fed chairman Jerome Powell has decided to hold press conferences after all eight open market committee meetings this year, instead of just quarterly, as had been the tradition since former Fed chief Ben Bernanke started the practice in 2011.
The “Fed Listens” events are another way of shedding light. One theme that emerged during a panel of business leaders at the conference Monday: even hot economies have their downsides.
Joanne Chang, owner of the Flour cafe chain, talked about how tough it is to find employees. She is now hiring bakers without any prior experience to keep up with demand, and raising wages to recruit and retain people. Peter Forman, chief executive of the South Shore Chamber of Commerce, said many service workers are driving to his region from Rhode Island, in part because of the high cost of housing. And AccuRounds chief executive Mike Tamasi said it’s tougher than ever to fill positions on the 75-person workforce that keeps his Avon precision manufacturing plant humming.
Rosengren took it all in, like a good economist would. Yes, he acknowledged later, the labor market is supertight in Boston. But wage growth nationwide has not been as speedy as he might have expected, given the low unemployment.The annual inflation rate seems to be stuck at or below the Fed’s 2 percent target. Rosengren, like his open market committee peers, remains inclined to stand firm, keeping the federal funds rate steady for now at a relatively low 2.4 percent.
Not everyone agrees. Most notably, President Trump has tried to pressure Powell and the rest of the Fed committee to send rates downward again. Trump tried to appoint two of his allies to the Fed board: Herman Cain and Stephen Moore. The widespread fear that Trump could politicize the Fed subsided after both candidacies imploded, largely for personal reasons, but it has not gone away.
Like Powell, Rosengren argues that the Fed’s independence is critical to its effectiveness. Central banks that lack such autonomy in other countries, Rosengren says, tend to get worse outcomes.
The Fed’s executives are not elected officials. But Rosengren recognizes that they need to be answerable to the public.
Perhaps ensuring this work occurs in a more transparent fashion offers another benefit: building support for keeping politics out of it.