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The Fed turns 100 – and can’t predict the future

As Congress prepares for the looming nomination of the next Chairman of the Federal Reserve, Congress has been holding hearings on the centennial of the Federal Reserve and the lessons learned from a century of central banking.  

Former bank CEO and AEI resident fellow Alex Pollock testified before the House Committee on Financial Services Subcommittee on Monetary Policy and Trade that “The Fed is as Poor at Knowing the Future as Everybody Else.” With a century of central banking under the nation’s belt, Pollock sees four main takeaways regarding the Fed: 

1. Economists running the Fed doesn’t guarantee success: “We should have no illusions…about the probability of sustained success of discretionary central banking, no matter how intellectually brilliant and personally impressive its practitioners may be.”

2. The Fed shouldn’t try to influence the short-term: “The Fed [should] focus on the medium- to long-term non-inflationary, or very low-inflationary expansion of base money.  It is much more likely to succeed at this than at trying to manage the economy.”

3. Who is holding the Fed responsible? “Given that the Fed is the single greatest source of systemic risk, we should reconsider ‘who should guard these guardians’…This includes the role of rules, Congress, and the internal balance between the regional Federal Reserve Banks and the Federal Reserve Board.”  

4. Time for a careful, rigorous, thoughtful review: “It has been 78 years since the Fed was restructured in the Banking Act of 1935, 36 years since the Federal Reserve Reform Act of 1977, and 35 years since the Humphrey-Hawkins Act.”