President's Message: Is the Fed Out of Touch?

Thomas C. Melzer

From time to time, the Federal Reserve is criticized for conducting monetary policy in an ivory tower. From high a top that tower, so the argument goes, the Fed enacts its policies, unaware of their effects on the nation's workers, consumers and businesses.

Unfortunately, this criticism reflects a fundamental misunderstanding of the Fed's decentralized structure and the opportunities it affords us to stay in touch with regional concerns. As president of the St. Louis Fed, for example, I spend almost a fourth of my time talking with and listening to various constituencies in the Eighth Federal Reserve District. Other Bank staff spend time in similar endeavors. Our contacts are far-ranging, including:

  • Boards of Directors—All four District offices have a board of directors, drawn from a broad cross-section of the public, as well as the banking community, in our seven-state area. Meetings are monthly.
  • Economic Advisory Council—We meet twice a year with members of this 10- to 12-member group to discuss the economic concerns of small business and agriculture.
  • District Dialogues—Four or five times a year, we host road shows for bankers, rotating among 18 cities. Two senior officers and I speak before each group, take questions and continue the discussion over dinner. The following morning, we host a similar meeting for community leaders.
  • Beige Book contacts—Eight times a year, just prior to Federal Open Market Committee (FOMC) meetings, we check in with dozens of District contacts in a wide range of industries for late-breaking trends in their businesses. A report on this information is distributed to FOMC members before the meeting and is released to the public.
  • Economic Forums—Four or five times a year, a senior economist and supervisory officer travel to District cities to speak to representatives of the local business and banking communities.
  • Speeches and presentations—Each year, Bank staff make almost 100 presentations to audiences ranging from local Rotary Clubs to national economic and trade associations.
  • Industry luncheons—Eight or nine times a year, we invite representatives from specific industries in for lunch and an economic discussion. In 1996, we met with homebuilders, retailers, corporate CEOs and CFOs, investment counselors and health care providers, among others.

Similar programs are going on in other Fed Districts. No doubt, my counterparts find, as I do, that the public is eager for the opportunity to interact directly with a principal in the monetary policymaking process. Not surprisingly, such interaction leads to some frank exchanges about economic prospects.

The point here is that the Fed's unusual structure—with policymaking balanced between a central board in Washington and 12 Reserve Banks in the field—ensures that national policies are never enacted from an ivory tower. In my view, it should be no other way.


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