What a misleading take. If we're to talk about Fed "losses," why not also talk about Fed "gains?" The Fed remitted close to $80B/year to the Treasury since the financial crisis. It was not permitted to accumulate those gains, which is fine. What's not fine is forgetting those gains and then suddenly noting the "losses."
Thanks for your comment. The losses are more salient here because they reveal harm in a way gains do not. The post-crisis framework (larger balance sheet and IOR) shifted interest-rate risk from the private sector onto the Fed’s balance sheet. When that exposure turned into losses, as we’ve seen recently, it raises accountability concerns given how opaque and insulated the Fed is.
Appreciate the reply. May I ask what accountability issues concern you exactly? Opacity over what? The balance sheet is perfectly transparent, of course. Opacity over the monetary policy rule? And what do you mean by an "insulated" Fed? The Fed is subject to audits and the Chair testifies twice a year before Congress. There are also the press conferences and speeches of Fed governors and presidents. I'm not sure what any of this has to do with (temporary) accounting losses (that are more than made up for in gains).
What I meant by opaque is that the post-crisis framework shifted risks from the private sector to the Fed’s balance sheet, with quasi-fiscal consequences that sit outside the normal budgetary process governing the Treasury. Yes, these decisions may be transparent in the sense that the balance sheet is public, but publishing that information does not tell Congress or the public what alternative paths were considered, what risks were traded off, or what, if anything, limits those decisions in the future.
As Bob Hetzel argues in a recent Mercatus policy brief, meaningful transparency requires a rule-like framework that allows outsiders to understand, evaluate, and contest policy choices. Losses highlight this governance weakness, which is why I emphasized them in my piece. I’m not blaming the Fed here. Ultimately, Congress is responsible for Fed oversight, but given its practical constraints, returning to a “boring” central bank with a simpler policy framework and a smaller footprint strikes me as the more realistic path than expecting Congress to do a better job (though Hetzel offers some ideas on that front).
What a misleading take. If we're to talk about Fed "losses," why not also talk about Fed "gains?" The Fed remitted close to $80B/year to the Treasury since the financial crisis. It was not permitted to accumulate those gains, which is fine. What's not fine is forgetting those gains and then suddenly noting the "losses."
Thanks for your comment. The losses are more salient here because they reveal harm in a way gains do not. The post-crisis framework (larger balance sheet and IOR) shifted interest-rate risk from the private sector onto the Fed’s balance sheet. When that exposure turned into losses, as we’ve seen recently, it raises accountability concerns given how opaque and insulated the Fed is.
Appreciate the reply. May I ask what accountability issues concern you exactly? Opacity over what? The balance sheet is perfectly transparent, of course. Opacity over the monetary policy rule? And what do you mean by an "insulated" Fed? The Fed is subject to audits and the Chair testifies twice a year before Congress. There are also the press conferences and speeches of Fed governors and presidents. I'm not sure what any of this has to do with (temporary) accounting losses (that are more than made up for in gains).
What I meant by opaque is that the post-crisis framework shifted risks from the private sector to the Fed’s balance sheet, with quasi-fiscal consequences that sit outside the normal budgetary process governing the Treasury. Yes, these decisions may be transparent in the sense that the balance sheet is public, but publishing that information does not tell Congress or the public what alternative paths were considered, what risks were traded off, or what, if anything, limits those decisions in the future.
As Bob Hetzel argues in a recent Mercatus policy brief, meaningful transparency requires a rule-like framework that allows outsiders to understand, evaluate, and contest policy choices. Losses highlight this governance weakness, which is why I emphasized them in my piece. I’m not blaming the Fed here. Ultimately, Congress is responsible for Fed oversight, but given its practical constraints, returning to a “boring” central bank with a simpler policy framework and a smaller footprint strikes me as the more realistic path than expecting Congress to do a better job (though Hetzel offers some ideas on that front).
Hetzel’s brief: https://www.mercatus.org/research/policy-briefs/mysterium-body-called-fed-how-discretion-obscures-accountability