How Will Less Fed Transparency Affect Markets and the Economy?
Summary
Goldman Sachs Exchanges explores the implications of new Fed Chair Kevin Walsh’s shift toward a less transparent monetary policy regime. Host Allison Nathan discusses this break from recent decades with former Fed Governors Donald Kohn and Stephen Myers, alongside Goldman Sachs Chief Economist Jan Hatzius. The guests debate whether reducing forward guidance and limiting projections will improve market signals or increase unnecessary volatility. While Myers argues that less transparency restores market discipline, Kohn and Hatzius warn that obscuring the Fed’s reaction function could hinder …
Topics discussed
Introduction: New Fed Chair and the shift to less transparency
Guest introductions and episode overview
Jan Hatzius: Benefits of the transparency revolution
Distinguishing Odyssean vs. Delphic forward guidance
The role of the dot plot as reaction function info
Donald Kohn: Critique of median forecasts and forward guidance
Kohn: Forward guidance constraints post-Covid
The importance of narrative and accountability for the Fed
Stephen Miran: Forward guidance increases long-run volatility
Miran: Market risk pricing and the SVB example
Miran: Nuances in interpreting inflation data
Miran: Reforming the dot plot and narrowing guidance
Hatzius: Market signals and volatility without clarity
Kohn: Finding the golden mean in Fed communication
Kohn: Volatility as a signal vs. uncertainty
Miran: Accepting volatility for better market signals
Hatzius: Durability of the new communication regime
Kohn: Unsustainability of current Fed quietness
Miran: Tools for the zero lower bound and future risks
Closing remarks and legal disclaimers
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