Federal Reserve Chairman Jerome Powell said May 25 central banks "cannot take our measure of independence for granted," adding that increased transparency would help in that mission.
Central bankers "must not forget the lessons of the past," when a lack of independence on monetary policy led to surges in inflation and economic downturns, he said at an event in Sweden. That is even more important given that governments face declining trust from the public, Powell said, noting that the trend may be partly due to the aggressive actions central banks took to fight the financial crisis.
The Fed has taken significant strides to explain its work to the public, including through its development of stress tests for financial institutions, he said. Before the crisis, regulators' views on financial stability risks and how individual companies could handle downturns "were shrouded in secrecy," he said. But now, the Fed publicizes several parts of its stress tests models and results and is proposing further steps to make them more transparent.
"The framework is still evolving, and we will need to be open to making changes and to new ways to enhance transparency and accountability," Powell said of postcrisis regulatory requirements.
Powell spoke at an event sponsored by the Swedish central bank and government, joined by other central bankers who agreed they should improve their communications with the public.
Agustín Carstens, the general manager of the Bank for International Settlements, said central banks should "embrace clear goals" and talk about them relentlessly.
"I think you have to be very persistent, even at times where inflation is low, that inflation is an important objective to defeat," said Carstens, the former Bank of Mexico governor.
Still, there is room for officials to help the public better understand their work, said Benoît Cœuré, a French economist who is a member of the European Central Bank's executive board. Officials have "concentrated too much on interacting with experts" and should try to make their communications more readable.
"What we say is actually quite difficult to grasp, sometimes," he said.
A lack of diversity among top officials also poses a major issue, he added, calling for "more resolute action by European leaders to appoint more women" to the ECB.
Mark Carney, the Bank of England governor, listed increased social media engagement and more visits to schools as two examples of improvements his central bank has undertaken.
Powell: U.S. government debt unsustainable
Powell made few remarks on the current state of monetary policy during the event, though he did say in response to a question it was too early to tell whether the Fed's current work will be viewed as effective in 25 years. The economy, he said, has not yet "seen the aftermath" of the Fed's continued efforts to wind down a balance sheet that peaked at around $4.5 trillion after the financial crisis.
Still, he said, the Fed's large-scale asset purchases generally accomplished their goal of improving the economy and "largely didn't produce the downsides that were widely predicted," such as a rapid spike in inflation.
Asked about whether growing U.S. government debt levels pose an issue, Powell reiterated his view that the country's fiscal situation is not sustainable. Powell downplayed a concern among some economists that Congress will have less room to provide fiscal stimulus during the next recession, therefore putting more responsibility on the Fed to give the economy a jolt. The U.S. will still have "fiscal space to respond" to the next recession, he said, though the issue is still one that "needs addressing urgently."
"It's a fact that the United States is not on a sustainable fiscal path," he said. "It's a serious problem, and now is a great time to be working on it, when the economy is strong [and] unemployment is low."
