The Fed鈥檚 higher road to lower prices
A new central bank chief sees humble listening in deliberations over monetary policy as the 鈥渟pecial sauce鈥� to curb inflation.
Federal Reserve Chairman Kevin Warsh speaks to journalists in Washington, June 17.
Rod Lamkey, Jr./AP
From the gas pump to the produce aisle, Americans are seeking respite from high prices. They now have a new champion. On Wednesday, Kevin Warsh made his debut as head of the Federal Reserve, easily the world鈥檚 most influential economic institution. The central bank chief told reporters the many ways he would change the Fed to rein in inflation. Yet, after being in office for only about three weeks, he also noted his own surprise at one immediate change.
鈥淚 was just incredibly impressed鈥� about how much the Fed鈥檚 colleagues have been 鈥渧ery open about changes,鈥� he said.
The comment is noteworthy because Mr. Warsh believes that 鈥済enuine鈥� deliberation among experts 鈥� relying on patient inquiry, respectful listening, and civil attentiveness to alternative views and data 鈥� is key to controlling the nation鈥檚 money supply and interest rates. He calls it the 鈥渟pecial sauce鈥� to help the Fed make 鈥渙ptimal鈥� decisions that can influence the global financial system.
Guaranteeing freedom for the Fed鈥檚 economists to advance even half-baked ideas 鈥� in confidence and out of public view 鈥� is essential for 鈥渢ruth-seeking,鈥� as he calls it, or forming a consensus on the state of the economy and what needs fixing.
Genuine deliberation, he wrote for the Hoover Institution Press in 2016, is 鈥渢he process by which participants not only share information, but also learn from and influence one [another].鈥�
How the Fed reasons its way to agreements is as important as the agreements. 鈥淎sking questions, probing for deeper explanations, and showing patience when participants explain their positions are all identified as evidence of active listening and are found in well-designed decision-making processes,鈥� he stated.
To make good on this approach, Mr. Warsh plans to set up task forces, using a mix of Fed staff and external experts, to come up with changes in several areas 鈥� from how the Fed communicates to financial markets to the use of alternative data sources to the impact of artificial intelligence.
He says he is 鈥減retty open-minded鈥� about the outcomes. Such intellectual humility might be a new marker for the Fed, especially as it misjudged the inflationary pressures during the pandemic. 鈥淲hat we鈥檝e given markets is a new chapter for the central bank,鈥� Mr. Warsh said Wednesday.
And Chapter 1 is all about collegiality in deliberations. Or as a Wall Street Journal reporter put it, 鈥渕ore courtship than chain saw.鈥�