Cold Reality From Former Fed Officials?



Former Fed officials are criticizing current Fed policy to a degree and veracity not seen since the 1970s. Are they quietly saying what current Fed officials cannot?



The passage above is from the May 6 monetary policy conference at the Hoover Institution. When Jim Bullard was asked a difficult question, he deferred to former Fed official Randy Quarles, who was the vice-chairman of supervision until this past January. 

Quarles said the Fed would accept a 1.5% rise in unemployment to rein in inflation. We are not hearing anything close to this from Fed officials. Was Bullard thinking this but afraid to say it? This exchange underscores our belief that former Fed officials have the freedom to say what current Fed officials cannot.

With this in mind, what other comments are former Fed officials making? Perhaps most front and center is former New York Federal Reserve President Bill Dudley’s opinion piece last month that suggested the Fed may have to actively lower the stock market:


  • Bloomberg – (April 6, 2022) Bill Dudley: If Stocks Don’t Fall, the Fed Needs to Force Them
    Tightening financial conditions will be key to getting inflation under control.
    It’s hard to know how much the U.S. Federal Reserve will need to do to get inflation under control. But one thing is certain: To be effective, it’ll have to inflict more losses on stock and bond investors than it has so far.


Former Federal Reserve Governor Rich Clarida is far more hawkish than current officials:



Former Fed Vice Chairman Don Kohn thinks the Fed has to engineer a recession:


  • The New York Times – Jenna Smialek: The Fed Is Set to Pull Back Economic Help Rapidly. Is It Too Late?
    Federal Reserve officials took a while to recognize that inflation was lasting. The question is whether they can tame it gently now.
    “They need to engineer some kind of growth recession — something that raises the unemployment rate to take the pressure off the labor market,” said Donald Kohn, a former Fed vice chair who is now at the Brookings Institution. Doing that without spurring an outright downturn is “a narrow path.”


Former Vice Chairman Roger Ferguson made similar comments recently:


  • CNBC – (May 5, 2022) Why the market is taking Powell’s ‘soft-ish’ economic language so hard: Former Fed official Roger Ferguson
    * Inflation may have peaked, but it isn’t going away.
    * Even with its “famously blunt” tools and Fed chair Powell expressing confidence in a “soft-ish” landing, the Federal Reserve will not be able to keep markets from being volatile and the economy from a rocky period.
    * The long-term outlook remains positive, but the next 18 to 24 months will be tough for businesses, according to former Fed official and former head of investing giant TIAA Roger Ferguson


Former officials are not alone in offering a more forthright assessment of current policy:



We believe the people noted above are saying what current officials cannot. The Fed is behind the curve and has some painful choices ahead. Financial markets are reflecting this reality.