Will the Fed's "Plain Speaking Era" Come to an End? Powell Takes the Stage for the Last Time on Wednesday

Original source: Jin10 Data

Powell is likely to hold his final formal press conference as Federal Reserve Chair on Wednesday local time (early Thursday Beijing time)—potentially marking the end of an era in which he regularly engaged in Q&A sessions with reporters as the central bank's top official.

Investors and economic observers closely follow such press conferences. Supporters of a regular Fed Chair media presence argue that it allows the central bank to shape the narrative around its interest rate decisions and helps the market digest Fed policies. However, some critics, including Kevin Warsh, President Trump's nominee to succeed Powell as Fed Chair, believe that Fed officials communicate too much.

Warsh, who is likely to be confirmed before the Fed's next policy meeting in mid-June, has hinted that he might completely stop holding regular press conferences.

Julia Coronado, President of MacroPolicy Perspectives and a former senior Fed official, said this is precisely why Powell's final appearance at the podium on Wednesday is "so significant."

She added: "I expect Powell to directly or indirectly defend transparency, the value of explaining oneself to the public and the press."

A Decade-Plus Tradition of Regular Press Conferences

Fed officials meet every six weeks (eight times a year) to set interest rate policy. Former Fed Chair Ben Bernanke first began holding press conferences after some meetings in 2011, initially four times a year.

Bernanke said at the time: "In the past, the mystique of central banking was about not letting anyone know what you were doing."

Powell began holding press conferences after every meeting in 2019, less than a year into his term. Announcing the move, Powell said he wanted to "summarize the state of the economy in plain English" because monetary policy affects everyone. He stated:

"We think the overall outcome is probably better if we explain as clearly as we can what we are likely to do and why. To that end, we try to convey our expectations for how the economy will evolve and how our policy stance might change."

Over time, Powell grew more cautious in answering reporters' questions.

Vincent Reinhardt, Chief Economist at BNY Mellon Investment Management, said in an email:

"The attention given to his ad-lib answers was more than he expected or wanted. Over time, he stuck closer to his prepared materials. The edges were smoothed, reducing points of conflict but also reducing information content."

By 2024, Harvard economics professor Greg Mankiw said Powell's cautiousness at the podium made press conferences a waste of time.

Mankiw wrote on his blog: "When the Fed Chair answers reporters' questions, he seems to convey as little information as possible using as many words as possible." He added: "From the Fed's perspective, the ideal press conference would have no news, primarily repetition and platitudes."

"If you're going to hold a press conference, you need to have something important to announce"

Testifying before the Senate Banking Committee last week, Warsh hinted he might adopt Mankiw's advice.

When asked by Senator Ruben Gallego (D-AZ) if he would adhere to holding eight press conferences, Warsh said:

"If you're going to hold a press conference, you need to have something important to announce."

The Fed began its move toward transparency after a sharp interest rate hike in early 1994 shocked markets and contributed to Orange County, California's bankruptcy at the end of that year—then the largest municipal bankruptcy in U.S. history.

Coronado noted: "Such volatility is of no value to the economy." The Fed concluded that "clearly stating what you are doing and why" was the better approach.

Some experts believe that despite Warsh's criticism of the Q&A format, he may find it difficult to resist the opportunity to shape public perception of the Fed under his leadership. Matt Luzzetti, Chief U.S. Economist at Deutsche Bank, said he doubts Warsh will end the practice of holding press conferences after every meeting.

Luzzetti stated in a note to clients:

"The press conference provides him with a powerful and frequent platform to put his personal stamp on the Fed's message and shape the narrative immediately after each policy decision. Abandoning this stage would be a missed opportunity."

At this week's meeting, the Fed is almost certain to make no adjustments to interest rates. The economic outlook remains highly uncertain amid the ongoing war with Iran, while with inflation currently surging, rate cuts expected later this year appear even more distant.

Reporters are likely to press Powell on whether he will remain on the Fed's Board of Governors after his term as Chair ends on May 15.

U.S. Attorney Jeanine Pirro announced last Friday that she would end her criminal investigation into Powell. Ian Katz, Managing Director at Capital Alpha, said it remains unclear whether this announcement will influence Powell's decision to stay on as a Fed Governor.

Powell can continue serving as a Governor until his term ends in January 2028.