Recent writings and presentations
"Maximum Employment and the Federal Reserve’s Monetary Policy Strategy", Presentation to the Shadow Open Market Committee, April 7, 2025. Conference videos. Slides. Paper. The "maximum employment" component of the Fed's "mandate" has posed problems for the Federal Open Market Committee. Arguably, the flawed treatment of the employment mandate in the 2020 revisions to the FOMC's Monetary Policy strategy statement and its implementation contributed to the Fed's delayed response and the magnitude of the inflation surge in 2021-22. The impending review of the strategy statement provides an opportunity to address the challenge of the employment mandate head on and forge a more up-to-date and better-grounded explanation of how it fits in to the conduct of monetary policy.
"From the 'Lender of Last Resort' to 'Too Big to Fail' to 'Financial System Savior': Federal Reserve Credit Policy and the Shadow Open Market Committee", paper prepared for a Hoover Institution Conference: A 50-Year Retrospective On The Shadow Open Market Committee And Its Role In Monetary Policy, October 13-14, 2024. This paper traces the evolution of ideas about how and why the Federal Reserve Banks should play a role in credit markets, and the commentary of the Shadow Open Market Committee on Fed credit policy.
"Last Resort Lending: Classical Thought vs. Modern Federal Reserve Practice", October, 2024. Mercatus Center Special Study. Twenty-first century central bank officials are fond of claiming that their credit market interventions were consistent with "fulfilling the classic central banking role as lender of last resort." The phrase "lender of last resort" is a reference to what Henry Thornton (1802) and Walter Bagehot (1873) wrote about how the Bank of England should respond to banking crises. Federal Reserve lending programs during the 2007-2009 financial crisis were inconsistent with the prescriptions of Thornton or Bagehot, because those programs were either sterilized or irrelevant to the type of monetary instability they sought to address. Moreover, both recommended against central bank lending targeted at particular sectors or borrowers and denied policy-relevant credit market imperfections. The contrast between classical thought and modern central banking suggests that the evolution of central bank practice over the past two centuries from lending in the service of monetary stability to lending for its own sake has been driven by governance and political considerations.
"Changing Governance Practices Seem to Have Reduced the Diversity of Views at the Federal Reserve,
which may have contributed to recent poor performance", Presentation to the Shadow Open Market Committee, April 5, 2024. Slides. Paper. Based on my Mercatus Center Policy Brief (see below). Also presented at Shadow Open Market Committee Conference at Chapman University, June 14, 2024.
"Governance and Diversity at the Federal Reserve", Remarks at Mercatus Center Conference: “The Legacy of Bennett McCallum and Lessons for Monetary Policy Today”, Washington, D.C., October 10, 2023. Link to conference program. Link to conference video. Now available as a Mercatus Center Policy Brief, January 8, 2024. Also appears in Central Banking (paywall).
"Racing Through Red Lines", Review of Jeanna Smialek: Limitless: The Federal Reserve Takes on a New Age of Crisis. Published online: September 12, 2023. Business Economics (2024) 59:64-66 https://doi.org/10.1057/s11369-023-00333-3.
"The Fed Should Talk About the Prescriptions of Systematic Policy Rules" Hoover Institution Monetary Policy Conference: How to Get Back On Track, May 12, 2023. Joint with Charles I. Plosser, based on paper presented to the Shadow Open Market Committee, November 11, 2023. Slides. Published as "The Fed Should Improve Communications by Talking about Systematic Policy Rules" in Getting Monetary Policy Back on Track, edited by Michael D. Bordo, John H. Cochrane and John B. Taylor, 345–70. Hoover Institution Press Publication, no. 736. Stanford, California: Hoover Institution Press, Stanford University.
"Some Questions About the Fed’s Monetary Policy Operating Regime" Presentation to the Shadow Open Market Committee, April 21, 2023, New York, NY. Slide deck. Before October 2008, the Federal Reserve implemented monetary policy by setting one interest rate--the federal funds rate (the overnight interest rate on inter-bank loans of account balances at the Federal Reserve). Now the Fed sets four interest rates: the interest rate on reserves, the interest rate at the Overnight RRP facility, the interest rate at the Standing Repo Facility, and it still sets a target for the federal funds rate. The Fed has not provided serious explanation of why it needs the ONRRP or SRF or what would be unsatisfactory about outcomes if the Fed simply set one rate, such as the interest rate on reserves, and let market forces determine other interest rates, just as it did prior to October 2008?
Wall Street Journal op-ed piece, with Charles I. Plosser, January 30, 2023. Based on November 11, 2022, Shadow Open Market Committee Position Paper; see below.
"The Fed Should Talk About the Prescriptions of Systematic Policy Rules" with Charles I. Plosser, November 11, 2022. Position Paper prepared for the Shadow Open Market Committee, November 11, 2022, New York, NY. Slide deck. Video recording of meeting (presentation at 27:17). (Also presented at the Hoover Institution Monetary Policy Conference, May 12, 2023.) After a lengthy delay as inflation surged, the Federal Reserve has tightened policy assertively and forcefully reaffirmed its commitment to price stability. But public views about the Fed’s likely policy path over the medium term have fluctuated frequently in recent months, requiring repeated pushback from Fed officials. These misunderstandings about the Fed’s medium-term policy path reflect a significant gap in FOMC communication and could have been avoided. The Fed should routinely make reference to the implications of systematic monetary policy rules when publicly discussing the likely future path of interest rates. Without tying policy mechanically to any particular formula, they could point out that the prescriptions from such rules capture the historical evidence on how monetary policy has been conducted when it has successfully reduced inflation.
"The Fiscal Costs of Quantitative Easing: A Case for Bills Only" Comments prepared for the Shadow Open Market Committee Conference 2022, The George L. Argyros School of Business and Economics, Chapman University, June 25, 2022. Paper.
"Money market fund reform: dealing with the fundamental problem" with Huberto M. Ennis and John A. Weinberg. Journal of Risk and Financial Management, 16(1): 42. https://doi.org/10.3390/jrfm16010042. After the events in March 2020, it became clear to U.S. policymakers that the 2014 reform of the money market funds (MMFs) industry had not successfully addressed the stability concerns associated with surges in withdrawals. In December 2021, the SEC proposed a new set of rules governing how money market funds can operate. A fundamental problem behind the instability of money market funds is the expectation that backstop liquidity support will be provided by the government in the event of financial distress, along with the government’s inability to credibly commit to not provide such support. This expectation dampens funds’ incentives to take steps ahead of time to mitigate the risk of sudden withdrawals. The newly proposed reforms are aimed at constraining withdrawals or penalizing them with “swing pricing”. We argue that if the commitment problem is the fundamental issue, it would be more useful to reduce expectations of ex-post support by requiring MMFs to have contractual commitments in place, ex-ante, for liquidity support from private parties. Earlier working paper version: Federal Reserve Bank of Richmond Working Paper No. 22-08, June 2022.
"A Look Back at the Consensus Statement," Paper prepared for Cato Institute's 37th Annual Monetary Conference, Washington D.C., November 14, 2019. Published version. Slides. The Federal Reserve has initiated a review of its monetary policy strategy, tools, and communications. The Fed’s current monetary policy strategy is enshrined in a document titled “Statement on Longer-Run Goals and Monetary Policy Strategy,” commonly referred to then as the "consensus statement." In it, the FOMC described its approach to monetary policy, formally announced the Committee’s inflation target of 2 percent, and explicitly declined to establish a numerical target for the unemployment rate. This paper looks back, with the benefit of hindsight, at the consensus statement and the long series of deliberations that led to the Fed finally specifying what price stability looks like quantitatively. Adopting a formal inflation target was a transparency milestone, but limitations of the consensus statement are apparent. They are attributable to the reluctance to surrender discretion and the resistance of strong advocates of the Fed's legislative "employment mandate."
“From ‘Real Bills’ to ‘Too Big to Fail’: H. Parker Willis and the Federal Reserve’s First Century,” H. Parker Willis Lecture, Washington & Lee University, Lexington, Virginia, February 27, 2018. Cato Journal, Vol. 39, No. 1 (Winter 2019), PDF, lecture, H. Parker Willis Lecture Series. Willis was an economics professor at Washington & Lee University who went on to serve as advisor to Congressman Carter Glass during the drafting of the Federal Reserve Act in 1913. He was a die-hard proponent of the "real bills doctrine" -- the idea that monetary policy would be appropriate if the Fed were permitted to lend only against loans arising from "real" commercial transactions such as trade finance or bills of exchange, as opposed to "speculative" investments such as stocks, bonds or commodities. Thus Fed lending was an essential adjunct to effective monetary policy for Willis and other founders of the Federal Reserve. The real bills doctrine was inherently flawed, though, and adherence to it led to Fed policy blunders in the early 1930s. Over time, Fed lending became divorced from monetary policy and lending policy evolved. Rescuing investors in failed financial institutions emerged beginning in the 1970s, setting precedents which arguably encouraged financial fragility and contributed to the financial crisis of 2007-09.
Comments on “Forward Guidance” by Marcus Hagedorn, Jinfeng Luo, Iourii Manovskii and Kurt Mitman. Carnegie-Rochester-New York University Conference on Public Policy Honoring the Contributions of Charles Plosser to Economics, April 20, 2018, Rochester NY. Published comments, slides, about the conference. I was delighted to participate in a gathering honoring Charlie Plosser.
"On Systemic Risk," presented at the Second Joint Central Bank Research Conference on Risk Measurement and Systemic Risk at the Bank of Japan, Tokyo, Japan, November 16, 1998. Paper, OK, so this is not recent work, but it was not published in the conference proceedings and it strikes me as still relevant.