Open Letter: The Fed Needs to Provide the Public Some Perspective

To: Federal Reserve Chairman Jerome Powell

Dear Chairman Powell,

The Fed is in an unenviable position today having to contend with problematic inflation, the economy’s restoration, employment disruptions, and the rather unpredictable interactions of the COVID pandemic with all aspects of life and economics. The uniqueness of the situation cannot be easy if one considers there is no reason that the normal understanding, theories and tools which economists would apply to helping sustain and guide the nation’s economy along a viable path can have the intended impacts expected. Add to this situation the normal or even heightened level of different opinions and perspectives that you share with the other Board members, the increased opinions and views of other economists, the always well-informed politicians, and the astute coverage which the news media provides on economic matters; and given those unusual conditions what could possibly go astray. Though the Fed’s tasks are neither easy nor often appreciated or understood, those efforts may be more important now than in recent memory.

The Fed’s decision to advance its “tapering” and accelerate interest-rate increases is just a reflection of the rapid dynamics that the US’s COVID-Consumer Economy is producing.

The unusual and extraordinary circumstances are changing daily and may call out for something even more unusual than the events causing them. The US “Misery Index” is high even though most economic indicators are remarkably in good territory. Inflation of course being the pernicious outsider, and chief factor threatening the recovery and the economy.

Given the economic risks to the current situation, the nation and the public need more than a calm and measured hand(s) on the economic tiller. The country needs someone to provide a more informative context in which the public better comprehends and recognize how our behaviors and reactions in these conditions may not act in our own best interests. America desperately needs a little grounding in economics. If the public does not connect the reality of the economic situation to their daily lives, their individual actions and choices are not just likely to cause the nation to suffer worsening impacts simply because we do not recognize how they are contributing to it by “being part of the problem”.

In a Consumer heavy/dominated economy, the aggregate behaviors of the consumers can easily overpower any other force(s) attempting to move the economy. Archimedes’ apocryphal quote: “Give me a place to stand and I will move the world” doesn’t just provide a lesson on mechanics or some salient life-lesson about the influence you can have by being in the right place and acting to some purpose. His “moving of the world” perspective can also inform our understanding about what moves the world; and how it is moved intentionally or moved without recognizing our own contribution to the ‘push’ on the lever. Ending ‘tapering’, raising rates, and other moves by the Fed are prudent steps but those steps may not exert enough leverage in time to counter the effects of the “800-pound” Consumer pushing on the economy and Inflation. Perhaps the Fed should consider using a tool that it has ready access to but may not recognize or feel is theirs to use.

The Fed should talk to the public about the Economy. I don’t mean talk to the financial industry, the banks, the Market, our political leaders, or the media. The Fed already does that. I mean talk to the public. Talk to the people who are the economy. The Fed needs to “inform” the public about how people ‘are’ the economy; and about how if you don’t understand the rules you are playing by you suffer the consequences, whether you like them or not. Perhaps you / the Fed think this is not your place or job; but you may be missing the most powerful lever and place from which you can ‘move’ the economy in these aberrant times.

This ‘informing’ goal cannot be done by ‘teaching’ economics 101; rather, the economic conditions operating in the public’s daily lives needs to be used to connect economic “cause” to economic “effect’. The reasons the Fed needs to do this are many. You want to increase confidence in the US’s economy, increase public belief in the Fed’s efforts to counter the conditions threatening them and the economy, and instill confidence in their own ability to act to help themselves. There are probably other reasons, but the above should be sufficient to justify the Fed acting to serve and inform the public’s need to know. If they act out of ignorance or fear, we already know the likely outcome. The current obsession, concern and focus on Inflation alone is indicative of where the public would benefit from understanding how their actions are moving multiple levers, each of which move inflation in the wrong direction.

There’s another reason the Fed needs to improve the nation’s understanding of how the economy depends upon the public understanding the economy in their own terms. Just knowing that the economy acts on multiple timelines simultaneously would be helpful. Does the public understand the Fed can only act in advance of a concern that is projected or in reaction to an unforeseen crisis after it has occurred? These disconnects between the forces that constantly drive the economy based on its underlying processes and the delay required for Fed interventions to work helps demonstrate why acting now is a corrective and not an immediate solution. Enabling the public to participate in moving the economic levers within their reach can help adjust the processes effecting their concerns. This knowledge is key to building the public trust and reducing their fears.

The value to the Fed of engaging in this effort would be it aligns with their efforts for influencing the future of the economy. The Fed is more likely to succeed in achieving its objectives if the public is engaged in accomplishing those goals. Just as importantly, if the public has a better context to understand their own choices, hopefully they won’t be acting in ways that obstruct the Fed’s efforts or actually worsen inflationary factors.

Just like timing is critical to confronting economic crises, your decision to engage with the public more fully will affect how effectively the Fed’s actions can be in reacting to crises. The Fed can choose to just depend upon the tools it currently has at its disposal, or you can choose to enhance the toolkit by empowering and engaging more forces that can brought to bear to rein in Inflation or whatever economic crisis needs to be dealt with.

If this perspective only provides you something to think about for a minute or two, I wish the Fed success in its endeavors.