For the last year, President Kocherlakota has served as a voting member of the Federal Open Market Committee (FOMC). The committee consists of seven governors of the Federal Reserve Board, president of the Federal Reserve Bank of New York, and a group of four other Reserve Bank presidents who serve one-year terms on a rotating basis. Until 2014 when he is once again a voting member, Narayana will continue to attend and have input into FOMC deliberations, but will not cast his vote on monetary policy decisions.
As hectic as his schedule was in December, Narayana willingly accepted an invitation to share his FOMC experiences with employees in this interview with RiverBank Currents (RBC).
RBC: How do you prepare for FOMC meetings?
NK: The FOMC meets eight times a year and, for me, the preparation is continuous. New data becomes available all the time and Reserve Bank presidents are regularly giving speeches, which gives me a sense of their viewpoints. When reading these speeches and reviewing the data, I am always asking myself about the implications for policy.
With that said, there is a burst of concentrated activity the week before each FOMC meeting. The Board of Governors staff’s perspectives are central to our dialogue, and all members receive information from them about how the economy has unfolded since the last meeting and how that has affected their outlook. During this week prior to the meeting, we are doing our own analysis of the information for the nation as a whole, as well as the Ninth District. Because I leave for FOMC meetings on Monday, the preceding three days (Friday-Sunday) are very intense. Fortunately, I have a great team to help me with this.
The continuous process of preparation includes the speeches I give to the public about policy. I believe that whenever you talk to others about a topic, it helps to sharpen your own thinking. The folks in Public Affairs are invaluable in helping me through this process. In terms of preparing for the FOMC meetings, I rely on people from Research, SRC, Community Development, and Banking and Policy Studies to provide input. Everyone involved must have the appropriate level of clearance to view confidential information.
RBC: Does anyone accompany you to the meetings?
NK: Each president is allowed to have one additional person attend. Usually Kei-Mu Yi, our Research director, joins me. However, others may go in his place as long as they have clearance. During my tenure, Ron Feldman, Jonathan Heathcote, and Warren Weber have all gone to FOMC meetings.
RBC: What is their role?
NK: It is fairly limited. Primarily, they monitor and take notes about what is happening at the meeting. During breaks, I may consult with whoever is with me to determine whether to amend what I am going to say given what has been shared so far. First Vice Presidents also rotate their attendance, so Jim Lyon has been to some meetings as well.
RBC: Is the preparation phase affected by whether you are a voting member?
NK: No. The same amount of work is involved because all Bank presidents speak at the meeting about the state of the economy as well as monetary policy, regardless of whether they will vote.
RBC: What is the structure of the FOMC meetings?
NK: The meetings have a structure that has been in place for many years. There are two opportunities for each member to speak uninterrupted. We call these “go-rounds.” The first one is the economics go-round where we provide perspectives on the current state of the economy and how we see it evolving. The presidents speak about information related to their respective Districts, but because we’re making policy for the nation, we are also discussing national economic conditions. The second go-round is when we offer our perspectives on monetary policy. There are many connections between the two in determining our actions or inactions.
RBC: How would you describe the environment of the meetings?
NK: In many ways, it’s similar to other committee meetings. However, the structure that I described alleviates the possibility of one person dominating the discussion because everyone is allowed a turn to speak without interruption. This approach can diminish the ability to engage in real-time debate, though, because you must wait for your turn. Many members speak from prepared remarks, so there is relatively little give-and-take that occurs during the meeting. Instead, there is a time delay. For instance, if a member said something at the April meeting, I may head back to Minneapolis and do some more analysis of my own and then perhaps share a differing perspective at the June meeting. What can help our dialogue is when presidents or governors circulate memos ahead of the meeting; that way, everyone has a chance to incorporate thoughts on the material into their remarks.
RBC: If you share a different perspective, is there a dialogue or are you just sharing your thoughts without response from others?
NK: Both. It is a complicated time, and we all view it as a collaborative process to get to the best point possible. On the way, we may well have different views of how that should work. We share our thoughts, but it is more than simply recording who thinks what. We strive to raise questions, suggest answers, and resolve issues.
I do want to mention that I have really enjoyed interacting with the other presidents. It has helped build bridges between Minneapolis and other Feds and it has been a very enjoyable part of my job. Although we may disagree, the presidents all view themselves as part of one team, and we should all be thinking that way when working with other Feds. Operationally there may be some friendly competition, of course, but it is a team effort.
RBC: Is the FOMC’s decision-making process affected by the vacancies on the Board of Governors?
NK: No, the vacancies don’t affect the process. That said, the more people we have with varied ranges of experience, the better the dialogue will be.
RBC: What is the chairman’s level of participation throughout the meeting?
NK: Chairman Bernanke is highly effective at leading the meetings from the back. That is to say, in general, he will speak last in the economics and policy go-rounds. This approach allows him to hear all the ideas around the table that may inform his own perspectives. During the go-rounds he may ask clarifying questions after people are done speaking; and, we are allowed to ask questions of him when he is done. Additionally, if the situation we are facing is quite complicated, he may offer guidance regarding things we should keep in mind as we discuss policy. The Chairman is remarkable at distilling what people have said – he can take nearly two hours of talk about the economy and effectively summarize the essence of that discussion.
RBC: Did you hesitate before dissenting at the August meeting?
NK: No, I didn’t hesitate. While it can be difficult to disagree with the central tendency of any committee, I always keep in mind the important nature of the decisions we’re making. That helps eliminate the nervousness about disagreeing with my colleagues. I don’t have a quantitative measure that I use to decide, but I do have a high bar for dissent; essentially, if I believe the committee’s decision is moving in a very different direction from where I think it should be going.
RBC: What has surprised you most in your role?
NK: I am surprised by the slow pace of our economic recovery and the sustained sense of uncertainty. It is not just the Federal Reserve; others who know our country’s economic history and have seen the statistical data are also surprised. To some extent, we base our thinking on what we’ve experienced in the past—we’ve recovered fairly rapidly before, but we’ve not seen that now. I didn’t expect that when I first took this job.
RBC: Is there a particular facet of the economy that causes you the most concern?
NK: The short-term issues, such as having such a high rate of unemployment for this extended period, are troubling. I am also very concerned about some of the longer-term issues that are outside of the Fed’s power—primarily our nation’s lower than desired rate of educational attainment. Over the last 20 years, our country has started to fall behind others in this respect. This isn’t something that can be fixed overnight; it is a process that will take a decade or more. The longer the issue goes unaddressed, the lower our citizen’s wages will be and the more difficult it will become to compete in the world’s economy.
RBC: What have you learned during your two years as president of our Bank?
NK: Two things come to mind. First, I have come to recognize that I enjoy change more than others. Being more conscious of this has helped me become more effective in my day-to-day interactions. Second, while I have always considered myself to be a good communicator, my experience had been primarily using a narrow language with a narrow scope of people: profession-specific language with academic researchers. Since taking this job, I have learned to communicate with a more diverse audience about a broad range of issues. This continues to be an area in which I strive to improve, with the help of many others in the Bank.
RBC: Considering all of your speaking engagements over the last couple of years, do you ever get recognized in public?
NK: No, I’m by no means a celebrity. Although I recently found myself in an elevator with a celebrity: Arnold Schwarzenegger…I’m sure it was an exciting moment for him!
RBC: Are you able to share your thoughts on the Ninth District’s economic outlook?
NK: I expect that in the next couple of weeks, our regional economists in Public Affairs will compile this information. Generally, the recessionary shock felt in the Ninth District through rising unemployment rates, for instance, was not as severe as other parts of the country. The Midwest has been recovering, but the pace has been slower than we’d like.
RBC: We’ve been hearing about the increased oil production in North Dakota. How has that affected the District’s economy?
NK: Certainly this work has been very important for our country in meeting the demand for oil. As for the Ninth District economy, it is important to keep in mind that only a subset of North Dakota is being affected by this boom, so the effect isn’t as great as one might think.
RBC: You have shared with employees and the public your belief that communication about the work of the Fed is essential to our success. How can Ninth District employees help?
NK: Employees can play a valuable role in talking to their friends and family about the fact that we are an organization of high integrity that operates in the public’s interest, as I’ve found this to be one of the primary concerns of the public. Beyond that, employees should try to make themselves as informed as they can about the work we’re doing, though I understand it can be challenging because a lot of what we do is technical and hard to articulate. It’s okay not to know all the answers if we can direct those with the questions where to look to find them – primarily to our public website where we have increased our communication efforts.
RBC: Is there anything else you’d like to share with Ninth District employees?
NK: I would like employees to know that I am truly enjoying my position. It is a challenging time for the Federal Reserve System, and I am proud to be working for such a fine institution. Additionally, I very proud to say that I am working for the Ninth District where we employ high-quality employees, produce high-quality work, and have one of the best work environments that I have encountered. These things have all contributed to our success and I am confident that we will continue to achieve great things in the future.