Is the Fed’s “Plain Language Era” Coming to an End? Powell Takes the Stage for the Last Time on Wednesday

Powell is likely to hold what could be his final formal news conference as Fed Chair on Wednesday local time (early Thursday Beijing time) — potentially marking the end of an era of regular question-and-answer sessions with the press as the central bank’s top official.

Investors and economic observers closely watch these press conferences. Supporters of having the Fed Chair regularly appear before the media argue that it allows the central bank to shape the narrative around its interest rate decisions and helps the market digest its policies. However, some critics, including Kevin Warsh, Trump’s nominee to succeed Powell as Fed Chair, believe Fed officials communicate too much.

Warsh, who is likely to be confirmed before the Fed’s next policy meeting in mid-June, has hinted he might completely stop holding regular press conferences.

Julia Coronado, President of MacroPolicy Perspectives and a former senior Fed official, said this is precisely why Powell’s final appearance at the podium on Wednesday is “so significant.”

She added, “I expect Powell will directly or indirectly defend transparency, the value of explaining himself to the public and the press.”

Over a Decade of Regular Press Conferences

Fed officials meet every six weeks (eight times a year) to set interest rate policy. Former Fed Chair Ben Bernanke first began holding press conferences after some meetings in 2011, initially doing so four times a year.

Bernanke said at the time, “In the past, the mystique of central banking was about not letting anyone know what you were doing.”

Powell began holding press conferences after every meeting in 2019, less than a year after taking office. Announcing this move, Powell said he wanted to “summarize the state of the economy in plain language” because monetary policy affects everyone. He stated:

“We think the overall outcome is likely to be better if we explain as clearly as we can what we are likely to do and why. To that end, we try to convey our expectations for how the economy will evolve and how our policy stance might change.”

Over time, Powell has become more cautious in answering reporters’ questions.

Vincent Reinhardt, Chief Economist at BNY Mellon Investment, said in an email:

“The attention given to his off-the-cuff answers exceeded his expectations or desires. Over time, he has stuck more closely to his prepared remarks. The edges have been smoothed, reducing points of friction, but also reducing the information content.”

By 2024, Harvard economics professor Greg Mankiw suggested that Powell’s cautiousness at the podium made the press conferences a waste of time.

Mankiw wrote on his blog: “When the Fed Chair answers reporters’ questions, he seems to convey as little information as possible using as many words as possible.” He added, “From the Fed’s perspective, the ideal press conference would have no news, consisting mainly of repetition and platitudes.”

“When you hold a press conference, you should have something significant to announce”

Testifying before the Senate Banking Committee last week, Warsh hinted he might adopt Mankiw’s advice.

When asked by Senator Ruben Gallego (D-AZ) if he would stick to holding eight press conferences, Warsh said:

“When you hold a press conference, you should have something significant to announce.”

The Fed began moving toward transparency after sharply raising interest rates in early 1994, which surprised markets and contributed to Orange County, California’s bankruptcy at the end of that year. It was the largest municipal bankruptcy in U.S. history at the time.

Coronado noted, “Such volatility is worthless for the economy.” The Fed believed it was better to “clearly explain what you are doing and why.”

Some experts believe that despite Warsh’s criticism of the Q&A sessions, he might find it difficult to resist the opportunity to shape public perception of the Fed under his leadership. Deutsche Bank’s Chief U.S. Economist Matt Luzzetti said he doubts Warsh would end the practice of holding press conferences after every meeting.

Luzzetti stated in a note to clients:

“The press conference provides him with a powerful and frequent platform to immediately stamp his personal imprint on the Fed’s message and shape the narrative after every policy decision. Abandoning this stage would be a missed opportunity.”

At this week’s meeting, the Fed is almost certain to make no changes to interest rates. With the ongoing conflict with Iran, the economic outlook remains highly uncertain, and with inflation currently surging, expected rate cuts later this year seem even more distant.

Reporters are likely to press Powell on whether he will remain on the Fed’s Board of Governors after his term as Chair ends on May 15.

New York prosecutor Jeanine Pirro announced on Friday that she would end her criminal investigation into Powell. Ian Katz, Managing Director at Capital Alpha, said it’s unclear whether this statement will affect Powell’s decision to stay on as a Fed Governor.

Powell can continue serving as a Governor until his term ends in January 2028.

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