The Federal Reserve sits at the helm of the U.S. economy, doing its best to fight inflation and maximize jobs.  And making up the Federal Reserve system is a small army of officials, among them the chair and vice chair, seven Fed board governors, and 12 regional bank presidents.

Fed officials don’t hand down opinions like the Supreme Court and they don’t have public debates like Congress. Their official meetings with one another, their internal debates, are private. So one way we find out what they’re thinking is… they give speeches. A lot of speeches. 

Speeches as windows

While speeches by the chair of the Federal Reserve have long been scrutinized, over the past few decades, the speeches of regional Fed presidents in particular have gained increasing attention as well.

They receive invitations from civic clubs, university groups, chambers of commerce, conventions, “far more than can possibly be accepted,” according to one Fed official.

At any given time, four of the 12 regional Fed presidents rotate onto the Federal Open Market Committee (the FOMC), which makes the decisions on interest rates and monetary policy that affect the whole economy.  The New York Fed presidency gets a permanent seat there as vice chair.

“The central bankers who participate in policymaking at the Federal Reserve are some of our most important economic policymakers in the nation and as a consequence in the world,” said Peter Conti-Brown, associate professor of financial regulation at Wharton.

“The Fed presidents are out there to inform the public, educate the public, interpret policy to the public, and give an individual sense of the direction of the economy,” according to Dennis Lockhart, who served as president of the Atlanta Fed for 10 years.  “There is little or no coordination from Washington with the presidents and the presidents are almost entirely free to express their own views,” with the exception of the New York Fed president, who does coordinate more closely, Lockhart said.  

There are ground rules — the talks are never compensated, presidents are only allowed to talk about their own views, they can’t speak for the Fed itself or their colleagues, and they can’t comment at all during a one and a half week “blackout period” prior to policy making meetings, the better to “facilitate the effectiveness” of policy deliberations.  There’s a code of ethics — for example you don’t speak to a private group and offer information they could profit from, a line that has at times been blurry and earned Fed presidents criticism.

The speeches themselves are usually about where the economy is headed or about monetary policy.  Some Fed Presidents will get assistance in writing them from the many economists on staff. The approaches range from fairly dry to fairly entertaining.  

“I had one of my staff people go out and buy a crystal ball,” recalled Lockhart, “and without saying anything at the beginning of a speech I pulled out the crystal ball and put it on the podium and I started the speech by saying ‘I guess you always wondered how the Fed comes up with its predictions!’”

Lockhart’s successor Raphael Bostic once spoke with a “swear jar” next to him, depositing a dollar every time he mentioned the word “transitory” in regard to inflation, to drive home the view that “transitory is a dirty word.”

How much talking is too much?

Economic calendars keep track of their comments for enthusiasts, presidents can give three or more speeches and interviews a month, and multiple presidents can give speeches in the same week. 

“I do think though that the reserve bank presidents talk too much,” said Conti-Brown. “Communication is a very important tool of monetary policy but that’s when you have a symphony, rather than cacophony.”

Music is in the ear of the beholder on this one, though. Sarah House is a senior economist with Wells Fargo and finds that “many times it might seem like a cacophony but if you listen very  carefully you can hear very important snippets of which way monetary policy is going, and learn a lot from some of the deep dives” these officials do into the workings of the economy or monetary policy.

As new economic data comes in between Fed meetings, economists and analysts pore over any clues to Fed thinking they can find, and that includes Fed Presidents, particularly if they are rotating onto the FOMC.  “Policy makers have a lot of discretion over what policies to enact. It really is an art. It’s a judgment call. And because of that we need to know what goes into their judgment,” said Derek Tang, an economist at policy forecasting firm LH Meyer.

There is such a thing as over-interpreting remarks, warns Dennis Lockhart. Disagreement over the economy’s trajectory or nuance of monetary policy between Fed presidents may not and often does not translate into a conviction so strong that it would warrant a dissenting vote.  Oftentimes disagreements are resolved in between a speech and a vote. “Markets sometimes over-interpret an individual president’s remarks,” said Lockhart, “and my advice is to, in some respects, make some distinctions between voices of the Fed.” 

When assessing the words of governors and regional presidents, “Think in terms of concentric circles around the chair, in this case, Jay Powell. There are a few people who are going to be close advisors to Jay Powell, and whose opinion on the next policy move, have great influence,” Lockhart said. “And then there’s a second or third circle. And some of the presidents are actually in the third circle there, they’re not really going to influence much the direction of policy. It’s hard from the outside to kind of understand those nuances.”

Shifting views on transparency

There was a time when Fed presidents didn’t give that many speeches, and people didn’t pay much attention to them. Before the ’90s, the entire Federal Reserve itself was much less transparent.

“They were less transparent for a reason, because they thought being more mysterious would allow them to have more short run control over the economy,” said Gary Richardson, professor of economics at UC Irvine and former official historian of the Federal Reserve system. “Like if people don’t know what you’re doing and thinking, then when you do something, you surprise them and then the financial markets shift.”

But over time the Fed’s philosophy changed and communication came to be viewed as an important policy tool in and of itself — the idea that talking about policy helps make it happen.   

This coincided with a rise in the prominence of Fed presidents themselves.  

Rise of the Fed president

Before the 1980s, bank presidents tended to be professional bankers or lawyers, according to Richardson.  But starting in the ’80s and ’90s, the Federal Reserve Board of Governors has encouraged the appointment of bank presidents who are PhDs in economics, who understand monetary policy and banking, “and who can contribute a lot to the discussion …as independent voices,” he said.  The research budgets of the regional banks were increased as well, leading the regional Fed banks to become centers of analysis.

Additionally, “The voting power of the bank presidents has gone up,” said Richardson.  

On paper, regional Fed presidents make up a minority of members on the FOMC, the committee that makes big monetary policy decisions. Only four of them serve there on a rotating basis. The New York bank president and the seven governors of the Federal Reserve have permanent seats (individual governors have term limits).  

Whereas the governors are appointed by the president of the United States, presidents are appointed by a different, mostly local process.  Congress intended this, said Richardson, so that they could prevent undue influence from the White House. 

“Remember they’re structuring this system under Roosevelt,” he said. “And Roosevelt was managing monetary policy to the Treasury from the Oval Office and dictating policy to the Fed. And the designers of the Federal Open Market Committee wanted to prevent the president from directly managing monetary policy, and they’re particularly worried about the president manipulating interest rates or the money supply around elections … so the FOMC was set up so that the that you would hopefully never have a situation where the current sitting president would have appointed a majority of the members.”

But over time, Richardson said, the presidentially-appointed board of governors often became understaffed. 

“The members of the board of governors aren’t very well compensated,” particularly compared to what individuals holding them could get elsewhere in the private sector, Richards said. “So the willingness of people to serve on the board has declined, and the length of time people hold seats on the board of governors has become shorter and shorter,” he said. That’s in contrast to regional bank presidencies, which Richardson says are more “cool,” more challenging, and better compensated.  Increasing partisan rancor has made it more difficult, and sometimes more unpleasant, for Fed governors to get confirmed by the Senate.

All of that leads to periodic vacancies on the board of governors, and makes the votes of regional Fed presidents more important, Richardson said.  “And so those are big reasons why you see this big shift over the last couple of decades to the Presidents mattering more.”

Turning point

But the real turning point that ushered in the rise of the regional Fed presidents — and their speeches — was the financial crisis.

“2008 put the fed on the public’s dashboard in a much more significant way,” said Wharton’s Peter Conti-Brown. “And after 2008 and especially after the 2020 reaction to the pandemic, the Fed became a much more of a participant in driving the car of the economy.”

As a result, its actions required a great deal more explanation, said Wells Fargo’s Sarah House. “That was a very complicated time, and so I think it took a lot of explanation of what the Fed was doing, and a lot of reassurance of what the Fed would do ahead, to allay fears in markets and to help ease financial conditions and support the economy’s recovery.”

We now live in a world where the role of the Federal Reserve in the economy and power over it are highly visible.  As long as that remains the case, expect more talking.