Investors closely watched Federal Reserve Chair Jerome H. Powell’s remarks this week for hints about the next interest rate hike. They got a few. But if you paid attention, you may have noticed something much more significant Powell said.
“The one piece of guidance that we gave that I probably wouldn’t do again,” he said, “is we said we wouldn’t lift off unless — until we saw both maximum employment and price stability.” Translation: Powell said the Fed probably shouldn’t have declared that it would wait to raise interest rates again (“lift off”) until the labor market was fully healed and inflation was back on target.
This might seem like a banal comment. It’s now a widely held view among economists, anyway, that the Fed should have begun raising interest rates earlier than it did, given how persistent inflation has been. It’s not even the first time Powell has acknowledged in public comments that the Fed didn’t get things exactly right.
But the remark was still striking, because this sort of boring admission is exceptionally, distressingly rare among public officials.
The norm instead is to deny, deny, deny. Never admit error. Never apologize. Never back down. Most seem to believe that acknowledging missteps would make them look weak, regardless of how minor or obvious the blunder might be.
Former president Donald Trump turned this strategy into an art form, reportedly on the advice of his mentor Roy Cohn. But refusal to concede any error has been embraced not just by Trump himself, but by many other politicians and presidential appointees.
Former Trump aides swore up and down that they had not predicted covid-19 deaths would end by May 2020, despite their tweets demonstrating otherwise. They denied they had misjudged Trump’s commitment to a peaceful transition of power. Or that they had assaulted peaceful protesters to clear the way for a presidential photo op.
Who are you going to believe, them or your lying eyes?
Unfortunately, the public often rewards this behavior. Perhaps it’s human nature to mistake confidence for competence, and pretenses of perfection for the real thing. Or to defend your “team” against any accusation of error.
Those of us in the media should know better, accustomed as we are to spin, lies and falsifiable denials. Yet often we don’t. We, too, punish public officials when they accept responsibility for mistakes, and we treat admission of error as more damaging than the error itself. This creates bad incentives.
Earlier this year, for instance, Treasury Secretary Janet L. Yellen quite reasonably acknowledged that she was “wrong about the path inflation would take” and explained which economic factors she hadn’t anticipated or adequately accounted for. The statement, which again struck me as pretty banal, was treated as shocking. Many news stories framed her comments (or “confession”) as a major gaffe.
At the time, I was ready to pull my hair out. What should Yellen have said instead when asked about her prior inflation forecasts (which, to be clear, most other economists misjudged as well)? Perhaps she could have ducked the question. Or better yet, she could have replied: “Inflation is exactly as I predicted! Anyone saying otherwise is fake news.”
Look, getting things wrong, especially in public, can be embarrassing. (I speak from personal experience, alas.) But it’s better to be governed by policymakers who acknowledge error, even when that error is embarrassing; address why they miscalculated; and then explain what they’ve learned for next time.
It may not be a coincidence that two high-profile examples of policymakers who’ve modeled this behavior have both chaired the Fed. (Yellen was chair from 2014 to 2018.) Fed officials understand how important maintaining credibility is if they want their policies to work as intended. They’re well-versed in what incoming Federal Reserve Bank of Chicago president Austan Goolsbee calls the “pathological irony of crisis”: If you lose credibility, your statements begin to mean the opposite of what you say.
“Remain calm” means “Everybody panic.” “Don’t worry about inflation” is interpreted as “Oh yeah, definitely freak out about inflation.”
Doing their best to get things right, but then acknowledging when they don’t without fuss, should make institutions such as the Fed more credible to markets. Especially since outside observers can easily identify how much and where the Fed erred, because the central bank releases frequent forecasts.
Of course, a public official’s acknowledgment of error doesn’t necessarily absolve them of accountability. Some high-stakes mistakes (or outright misdeeds) are unforgivable. But I’d much rather live in a world where voters and the media treat acknowledgment of past fumbles as better than denial of them. It’s the best way to normalize learning, switching course and doing better next time — rather than doubling down on past mistakes.