The key takeaways from 48 hours of Federal Reserve-related activity


Federal Reserve Chair Janet L. Yellen walks in with faculty and staff during New York University’s commencement ceremony at Yankee Stadium on Wednesday. Yellen received an honorary doctorate and was the commencement speaker. (Andrew Burton/Getty Images)

The Federal Reserve is in the midst of a 48-hour information overload: Four Fed presidents are speechifying, Chair Janet L. Yellen is commencement addressing, Federal Open Market Committee minutes are dropping, and the Senate is confirming. No wonder Wall Street has been so volatile.

Here is a guide to what you should really know from all of this activity.

Fischer’s confirmation vote

The Senate on Wednesday afternoon approved the nomination of Stanley Fischer, the former Bank of Israel chief and all-around macroeconomic mensch, to join the Fed. The move prevents the central bank’s influential board of governors from dwindling to three members after Jeremy Stein steps down at the end of this month — the first time the central bank would be in that predicament since its current structure was established. The confirmation also puts Fischer at the Fed in time for its next policy-setting meeting, in June. He is slated to become the vice chairman at the central bank.

Two more Fed nominees are waiting for Senate confirmation: former Treasury official Lael Brainard and sitting Fed governor Jerome Powell, whose term is up for renewal. But even if they are confirmed, the central bank would still be left with two empty seats on the board of governors. On Wednesday, Kansas City Fed President Esther George called for at least one of those vacancies to be filled by a community banker­.

“Experience and informed judgment are as important to good policy as academic and theoretical frameworks,” she said during a speech in Washington.

Several lawmakers have also called for a community-banking voice at the Fed, and Yellen said during testimony on Capitol Hill this month that she supports that effort. Bloomberg News has reported that the White House is considering two potential candidates: Rebeca Romero Rainey, head of Centinel Bank of Taos in New Mexico, and Ann Marie Mehlum­, former chief executive of Summit Bank in Oregon.

Dudley’s speech

New York Fed President William Dudley delivered a substantial speech Tuesday that clearly articulated the dominant view within the Fed on how to interpret the recent slowdown in growth and housing, and he delved into the logistics of the Fed’s return to normal policy. The head of the New York Fed is typically closely aligned with the central bank’s leadership and sometimes acts as its surrogate. So his comments deserve extra weight.

●Weather, expiration of federal unemployment benefits for the long-term jobless and an expected drawdown in trade and business investment can be blamed for the stagnant economy during the first quarter.

●The long-term jobless may be simply unlucky — rather than permanently unemployable.

●Even after interest rates rise, they may be lower than historical norms because (1) households and businesses save more, (2) an aging population implies lower potential GDP, and (3) banks are required to hold more capital.

●That the Fed is discussing the specifics of what the exit from unconventional monetary policy would look like is in itself notable. Raising interest rates and shrinking the balance sheet are no longer far-off, abstract ideas.

FOMC minutes

The central bank’s policy-
setting arm, the Federal Open Market Committee, hit the ground running during its April meeting. First on the agenda was a detailed debate over the tools it might need when it eventually raises interest rates and shrinks the balance sheet.

According to minutes of the meeting released Wednesday afternoon, the board did not reach any conclusions but directed the staff to keep analyzing its options. Of course, the minutes included this caveat: “The Committee’s discussion of this topic was undertaken as part of prudent planning and did not imply that normalization would necessarily begin sometime soon.”

Yellen at NYU graduation

Yes, it was Yellen who spoke at New York University’s graduation ceremony at Yankee Stadium on Wednesday.

Her speech encouraged students to foster their curiosity, listen carefully to others and remember that success is determined more by “grit” than ability.

“One aspect of grit that I think is particularly important is the willingness to take a stand when circumstances demand it,” Yellen said. “Such circumstances may not be all that frequent, but in every life, there will be crucial moments when having the courage to stand up for what you believe will be immensely important.”

Excerpted from Wonkblog, at washingtonpost.com/wonkblog.

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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