With the Federal Reserve's next meeting more than six weeks away, this month's annual Fed symposium in Jackson Hole, Wyoming, will grab the spotlight. Investors are eager for clues on how new Chair Kevin Warsh's task forces on Fed reform will pan out. These five study groups will look at the central bank's communications, balance sheet policy, data analysis, productivity, and inflation frameworks.
A host of prominent economists and former policymakers will join them, including former Reserve Bank of India Governor Raghuram Rajan, former Bank of England Governor Mervyn King, and former Central Bank of Brazil Governor Arminio Fraga.
But one name among the luminaries catches the eye: former Bank for International Settlements (BIS) chief economist William White. White is widely credited with warning of the 2007-2008 banking crash, stressing to central bankers that overly lax monetary policy was hopelessly inadequate to rein in the speculative mortgage and credit bubbles that eventually brought the global economy to its knees.
Simply meeting targets of 2% missed the bigger issue of broader monetary stability, he argued, and speculative asset behaviour was as much a factor for central banks to consider.
White, who left the BIS in 2008 after 14 years and has been involved with numerous advisory bodies ever since, was a staunch critic of former Fed Chair Alan Greenspan's view that central banks could do nothing about the formation of asset bubbles. At Jackson Hole in 2003, White urged a reluctant Greenspan to lean into credit bubbles by raising interest rates early and forcing banks to boost their capital buffers.
A Cassandra of his day, White wasn't heeded, and the rest is history. He now joins Warsh's inflation frameworks task force. The Canadian economist is just one voice of course, but it will be fascinating to get his view on the Fed's current interest rate models at a time of spectacular asset speculation fuelled by the tech and AI frenzy.
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