Gillian Tett of the Financial Times recently posed this question in an opinion piece: “How should the Federal Reserve engage with the public?”
Soon after becoming chairman of the Fed, Jerome Powell did something no other Fed chairperson (or perhaps any major central bank governor) has done before. He posted a video where he speaks directly to the camera, in plain English, to stress his commitment to communicate “what [the Fed is] doing, and why [they] are doing it”.
Tett describes why this unusual and wonders if it is the right move. Central Banks only recently began to communicate with the public more regularly. In the past, central bankers saw little need to be transparent with the public. To them, the more they explain, the more people can misinterpret, and after all, the more mystical they were perceived to be, the easier it was to establish credibility.
Today, central banks use communication as a policy tool. Some have begun making an effort to improve the readability of their public reports, others have begun tweeting more regularly from their highest office.
In Tett’s article, she asks if this is good or bad. Should the Fed engage with the public this way? Will it help or hurt the independence of the central bank? What about its perceived credibility? Is some level of mystique actually helpful?
I responded in one of the internet’s most glamorous spaces — the comment section (FT):
It is a great thing that the Fed has taken steps to increase the readability of its reports and make its existing communications more accessible and citizen-friendly.
This would support a better informed public and improve the quality of forward-looking expectations from smaller businesses, for example (the markets already understand the econspeak).
Where trouble could appear is if it goes beyond making existing communication more accessible. Using this broader communication tool to present new thinking and influence voters, for example if it responds to political attacks directly, could compromise its independence and its credibility.