Randall Forsyth of Barron’s wonders how the Federal Reserve might operate under different management.
The standard parameters for Fed policy are full employment with price stability, which hardly seem controversial. To a great extent, those conditions have been met. The most widely watched measure of unemployment last month put it at 4.4%, while employers complain that they can’t find enough qualified job applicants. Inflation, however, continues to run below the Fed’s 2% target, which has been the main impediment to further rate hikes.
That decision-making process comes out of academia. In recent years, the Massachusetts Institute of Technology has boasted notable central-bank heads among its Ph.D. program’s alumni, including former Fed Chairman Ben Bernanke and current European Central Bank President Mario Draghi, both of whom studied under soon-to-depart Fed Vice Chairman Stanley Fischer.
In the process, there has been a considerable confluence of monetary policies pursued by central banks. …
Given that decidedly mixed record, it seemed worthwhile to chat with some folks who, to cite the former (and ungrammatical) Apple slogan, think different. …
… If there was a consensus among the nonconsensus thinkers we queried, it wasn’t only that the Fed should shrink its balance sheet, but that the process should have started a while ago. “The market has become accustomed to this unusual, radical policy,” says Cliff Noreen, deputy chief investment officer of MassMutual. Now would be an ideal time to start undoing that policy; the equity and debt markets are strong, while the dollar is down 10%, so this is a propitious time for a tightening via the balance sheet and a quarter-point fed-funds rate hike, he contends.
On a more fundamental level, a number of respondents question what monetary policy can and cannot accomplish, and what deleterious side effects its decisions can have.
“All a central bank can do is help to create a stable monetary environment,” writes longtime Barron’s Roundtable member Felix Zulauf, who heads Zulauf Asset Management in Baar, Switzerland. “Monetary policy cannot create jobs,” which depend on capital, entrepreneurs, and a sound public education system to prepare students for challenging work, among other things outside the Fed’s purview, he adds.
