At least a third of all Federal Reserve officials have said they would consider meeting less frequently to set interest rates, giving Kevin Warsh an early opening for one of the biggest structural changes he’s proposed as the central bank’s new chairman.
Whether the idea might be adopted any time soon remains uncertain. The Fed’s policy committee hasn’t yet hashed out any details. Some officials who are open to it have also said they want to see further analysis of the potential trade-offs, along with a consideration of whether the change is packaged with other potential adjustments to the Fed’s communications strategy.
Cleveland Fed President Beth Hammack, Jeff Schmid of Kansas City and Philadelphia’s Anna Paulson are among a group of six regional Fed chiefs who’ve said recently they are receptive to scaling back the number of regularly-scheduled meetings for the committee that sets interest rates.
At their July gathering, Warsh floated holding six meetings a year to deliberate and set interest rates, while reserving two separate meetings to discuss a substantive economic topic, Bloomberg News previously reported.
The central bank is obligated by law to meet four times per year, though the number of meetings has varied over the decades. Since 1981, officials have scheduled eight sessions a year.
“The chairman observed that six scheduled meetings per year, held roughly every two months, would allow more information to accumulate between meetings than under current practice and provide policymakers and the staff more time to consider strategic monetary policy issues,” minutes of the July meeting showed.
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Reducing the number of meetings would mark a significant shift in the way the US central bank operates and would set it apart from its major overseas counterparts. The European Central Bank, Bank of England and Bank of Japan all meet eight times a year.
It’s unclear if officials will discuss Warsh’s proposal in much detail at the policy meeting set for Sept. 15-16. The issue of elevated inflation and whether to hike rates for the first time in three years could dominate the upcoming meeting.
While several officials said they’re open to reducing the number of Fed meetings each year, some said they want to first analyze the potential implications of the shift.
“It’s great to take a fresh look at the way we do things,” Paulson said on CNBC last month. “Like monetary policy, I’m open minded there, too. I want to understand better the trade-offs of six versus eight — how that all works.”
Implications for Forecasts
Changing the meeting frequency would likely have implications for the materials the Fed releases at some of its meetings. Currently, the Fed publishes policymakers’ economic forecasts and interest-rate projections four times a year — at the March, June, September and December sessions. Shifting to six meetings would raise the question of whether and how frequently those forecasts would still be published.
The release of those forecasts is itself being examined by a communications task force — one of five such groups of outside experts established by Warsh this year to examine various Fed practices. All five task forces are expected to make recommendations to the Federal Open Market Committee around the end of this year.
“I think it’s healthy,” said Chicago Fed president Austan Goolsbee, on Bloomberg’s Odd Lots podcast last month, when asked about the communications review and the potential for changes to the cadence of meetings, economic forecasts and post-meeting press conferences. “Let’s rethink all of those.”
The idea of fewer meetings tracks with Warsh’s plans for a central bank that generally says less. At the conclusion of his first meeting as chairman in June, the Fed released a pared-back statement that eliminated much of the boilerplate language that had grown over the years. He also has pointedly declined to commit to holding press conferences after each FOMC meeting beyond this year.
In 2014, Warsh recommended the Bank of England conduct fewer meetings as part of a review he conducted of its transparency practices at the behest of then-Governor Mark Carney. Specifically, Warsh recommended the BOE move from 12 meetings to eight, to give policymakers more time to contemplate incoming data. He reasoned the economy rarely shifts fast enough to warrant a policy change on a monthly basis. The BOE ultimately adopted the change.
Warsh has been less specific about whether he would commit to further reducing the Fed’s meeting calendar. At his April confirmation hearing, he noted the law requires at least four a year, but that was “not enough.”
Vincent Reinhart, chief economist at BNY Investments and a former senior Fed staff economist, said holding fewer meetings could help insulate the central bank from political pressure by reducing the frequency of high-profile policy discussions that attract scrutiny from lawmakers and the White House.
“It narrows the target on the Fed’s back,” he said. “If you cut the number of events from eight to six, you — on net — lessen the amount of attention the Fed gets.”
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