2008 Woodie Awards
Former Richmond Fed Chairmen recounts past battles with 'flation
Mary Childs
Issue date: 3/28/07 Section: News
Some see "the Fed" as economic smoke and mirrors - but in a talk Monday night in Lee Chapel, J. Alfred Broaddus, W&L '61, said it's all just cigar smoke.
In detailing his extensive experience as President of the Federal Reserve Bank of Richmond from 1993 to August of 2004, Broaddus gave a few illustrative stories of former Fed chairman Paul Volcker - "Tall Paul," "rough and tough" - and said that "there's nothing Paul liked more than a cheap cigar." Volcker was chairman from 1979 to 1987, yet few photographers managed to get through the perpetual haze to snap the chairman of one of the most misunderstood and strangely mysterious institutions of the U.S. Federal government.
But the Fed has been working hard to clear the smoke, Broaddus said - ironically under the chairmanship of notoriously tight-lipped Alan Greenspan, Fed Chairman from 1987 to 2006. For instance, the Fed started issuing statements and press releases about its actions only in the mid-nineties.
"The Fed has come a long way on the transparency front," Broaddus said.
The governing board of the Federal Reserve Bank, the Federal Open Market Committee (FOMC) controls the amount of money in the U.S. economy, and thereby the price of money: the interest rate. While Broaddus says that monetary policy is not the final word on how the economy fares now and in the future, it is key that the Fed can "take the temperature of the market," and act accordingly. As president of the fourth of 12 districts, Broaddus had a rotating seat on the FOMC, and was called by a Goldman Sachs higher-up one of the best minds in the Fed.
Broaddus delivered the fifth annual H. Parker Willis at his alma mater and titled his talk "Reflections of a 'Flation Fighter." He calls himself a 'flation fighter because his constant battle against inflation earned him a strict reputation among members of the Fed, as well as his cautioning against the lesser-known "monetary disease" of deflation.
Broaddus discussed the "transformation of monetary policy" through "analysis, actions and words," all of which have evolved as the Fed has matured over time. Since its inception in 1913, the Fed has weathered oil shocks and world wars and now seems to be coming into its own. Broaddus pointed out that in the early 90s, the Fed reacted to market shocks without its actions inducing a recession - a sign of not only the market's trust in the institution, but also the Fed itself knowing better which tools to use. His only suggestion looking forward was for a "fully articulated contingency plan" in the face of potential deflation, the under-discussed cousin of inflation.
One member of the audience of several hundreds of students and faculty voiced concerns over the diminishing importance of the U.S. economy, but Broaddus seemed unfazed, saying that the U.S. economy is "still dominant," and consequently U.S. monetary policy's influence will still be "pervasive" internationally. He also assuaged fears of sub-prime housing markets having a long-term impact on the economy, saying that the housing bubble has largely already burst, and that he'd be surprised if it continued to have an effect. Broaddus' concern is that sub-prime problems could leak into other credit markets. Broaddus' talk was frank for a former Fed employee, with balanced commentary on the Fed's responsibility and potential miscalculations in, for example, "rebasing" interest rates.
In detailing his extensive experience as President of the Federal Reserve Bank of Richmond from 1993 to August of 2004, Broaddus gave a few illustrative stories of former Fed chairman Paul Volcker - "Tall Paul," "rough and tough" - and said that "there's nothing Paul liked more than a cheap cigar." Volcker was chairman from 1979 to 1987, yet few photographers managed to get through the perpetual haze to snap the chairman of one of the most misunderstood and strangely mysterious institutions of the U.S. Federal government.
But the Fed has been working hard to clear the smoke, Broaddus said - ironically under the chairmanship of notoriously tight-lipped Alan Greenspan, Fed Chairman from 1987 to 2006. For instance, the Fed started issuing statements and press releases about its actions only in the mid-nineties.
"The Fed has come a long way on the transparency front," Broaddus said.
The governing board of the Federal Reserve Bank, the Federal Open Market Committee (FOMC) controls the amount of money in the U.S. economy, and thereby the price of money: the interest rate. While Broaddus says that monetary policy is not the final word on how the economy fares now and in the future, it is key that the Fed can "take the temperature of the market," and act accordingly. As president of the fourth of 12 districts, Broaddus had a rotating seat on the FOMC, and was called by a Goldman Sachs higher-up one of the best minds in the Fed.
Broaddus delivered the fifth annual H. Parker Willis at his alma mater and titled his talk "Reflections of a 'Flation Fighter." He calls himself a 'flation fighter because his constant battle against inflation earned him a strict reputation among members of the Fed, as well as his cautioning against the lesser-known "monetary disease" of deflation.
Broaddus discussed the "transformation of monetary policy" through "analysis, actions and words," all of which have evolved as the Fed has matured over time. Since its inception in 1913, the Fed has weathered oil shocks and world wars and now seems to be coming into its own. Broaddus pointed out that in the early 90s, the Fed reacted to market shocks without its actions inducing a recession - a sign of not only the market's trust in the institution, but also the Fed itself knowing better which tools to use. His only suggestion looking forward was for a "fully articulated contingency plan" in the face of potential deflation, the under-discussed cousin of inflation.
One member of the audience of several hundreds of students and faculty voiced concerns over the diminishing importance of the U.S. economy, but Broaddus seemed unfazed, saying that the U.S. economy is "still dominant," and consequently U.S. monetary policy's influence will still be "pervasive" internationally. He also assuaged fears of sub-prime housing markets having a long-term impact on the economy, saying that the housing bubble has largely already burst, and that he'd be surprised if it continued to have an effect. Broaddus' concern is that sub-prime problems could leak into other credit markets. Broaddus' talk was frank for a former Fed employee, with balanced commentary on the Fed's responsibility and potential miscalculations in, for example, "rebasing" interest rates.
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