A proposal that could lessen emphasis on the Fed

Matthew Klein of Barron’s asks a simple question about future action from the Federal Reserve.

Every six or seven weeks, the members of the Federal Reserve’s Open Market Committee gather to discuss the economic outlook and financial conditions, after which they vote on the appropriate setting of monetary policy.

What if they didn’t?

Maybe officials should meet only when a quorum of voting members thinks they need to. (The next scheduled meeting is set to take place on Tuesday and Wednesday.)

Depending on the circumstances, officials could choose to wait months between meetings, or just days. Staff experts could regularly update officials via email as new data comes in, instead of preparing elaborate presentations and briefing books.

The suggestion may sound odd—and several people with central-banking experience told me their reservations—but there are several potential advantages to having meetings-by-demand.

First, it could improve the relationship between the central bank and the financial markets. The current system encourages interest-rate traders to bet trillions of dollars that the Fed will behave in particular ways on particular dates. …

… Ditching the fixed schedule would help make policy less predictable because it would spread the risk of a Fed move across the entire year.

Rate changes could occur—or not—at any time.

Making Fed policy less predictable could also make market prices better signals. In the ideal world, interest-rate traders would focus on pricing the cost of credit to balance supply and demand, while central bankers would calibrate monetary policy to be tight, loose, or neutral based on their interpretation of those market interest rates.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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