The Fed Needs to Keep It Simple
A less complicated approach to explaining the Federal Reserve’s policy decisions would make it more credible.
Please keep it simple, Mr. Chairman.
Photographer: Bonnie Cash/Getty Images North AmericaI take Jerome Powell at his word when he says that he and his colleagues at the Federal Reserve are determined to get inflation back to its 2% target. And I’m sure they understand how important it is that people believe this promise. Any doubt on the matter will make their job vastly more difficult. So, as conditions change, they have to explain adjustments to monetary policy in a way that makes the commitment credible rather than calling it into question.
Quite a challenge, especially when the economy is being shocked from various directions. The recent cut in the policy rate and subsequent discussion of the Fed’s thinking illustrate the problem. The cut made sense, and the reasoning could have been simply explained. But the actual explanation was needlessly complicated and, partly as a result, less persuasive. By blurring the message, this excess of complexity runs the risk of unsettling expectations.