Resident Scholar Vincent R. Reinhart

Thank you for the invitation to speak at the second Monetary Policy Forum. This is a rare venue in the way that policy makers and market participants mingle. You can understand why the organizers might have the ambition to brand this as Jackson Hole East. Or Jackson Hole without the mountains. Or the rivers. Or Bill Poole in a cowboy hat. I advise pitching that as a virtue: At Jackson Hole East, there is no western-wear fringe to distract from a pure discussion of monetary policy making.

But first a little background. I left the staff at the Federal Reserve's Board of Governors at the end of September, although I had not participated in policy discussions in a meaningful way for the prior two months. Fifteen minutes of job search led me to the American Enterprise Institute, which offered the security of unconditional support for research and the lightest touch of the invisible hand of management that could be imagined. My intent was to work quietly on issues related to the intersection of finance, global macroeconomics, and the communication of monetary policy. Who knew that quiet contemplation was not in the cards?

What I have observed from my new position on the sidelines of monetary policy and markets is a failure to communicate. In all aspects of life, such a failure usually involves both parties. My central premise today is that market participants do not appreciate the extent to which the Federal Reserve has changed in the past year. Those changes reflect an ambitious attempt to apply the economic profession's understanding of the science of monetary policy to improve the governance of the policy process, the communication of policy intent, and the conduct of policy. At the same time, I will also argue that Federal Reserve officials have not always appreciated the difficulties in applying lessons from the textbook, in part because those economic models are incomplete and in part because the Federal Reserve's uneasy relationship with the Congress sometimes hampers plain speaking.

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Vincent R. Reinhart is a resident scholar at AEI.