Bryan Cutsinger, Peter Ireland, and Will Luther on Lessons Learned from the Fed Framework Review

**David Beckworth** (0:02)
Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University, and I'm glad you decided to join us.
Our guests today are four veterans of the podcast, Bryan Cutsinger, Peter Ireland, and Will Luther. They join us today to discuss a recent paper they have produced on the Federal Reserve's Framework Review. Gentlemen, welcome to the podcast. Thanks for having us. It's great to have you back. Again, you're veterans of the show. Will, you weren't on too long ago, maybe last year, I believe.

**Will Luther** (0:46)
Yeah, I think that's right.

**David Beckworth** (0:47)
We talked about Bitcoin, stable coins, the future of money. Today we're going to talk about the future of the Fed and lessons learned or not learned from its Framework Review.
So tell us, how did the three of you get together and decide this was something that needed to be done?

**Will Luther** (1:03)
Well, I think it began with the work that we were doing prior to the Framework Review. Bryan and I had both organized a special issue of the Southern Economic Journal. You participated, Peter participated in that special issue. We put together all of this work, hoping to inform this process.
Then in January of 2025, the Fed kicked off its official Framework Review. In that first press conference, Chair Powell laid out basically what was going to happen. But the review hadn't really started yet. So that raised some eyebrows. It looked like this was worked out in advance.
That's when I started paying close attention to the actual review process and then spoke to Bryan and Peter about reviewing the review.

**David Beckworth** (1:57)
Okay.
Anything you want to add to that? Any interests or perspective?

**Bryan Cutsinger** (2:03)
I think for me, one of the things that I found frustrating is that, so we have 40-year high inflation, seems like that would be the appropriate time to maybe radically rethink the framework. Think about something like nominal GDP targeting or price level targeting or whatever. So to just basically admit we're going to go back to a not great version of the status quo, seems like a large missed opportunity to me. I think that was the other factor driving one to write this paper.

**Peter Ireland** (2:29)
Right. It's an exaggeration to say that things are as bad as or worse than they were in the 1970s. But as somebody who studied Fed Reserve policy and the history of Fed Reserve policy, it's painful to see elements of the mistakes of the 1970s play out again. And so it's an opportunity to highlight the similarities, the problems that arise again and again over the course of monetary history in hopes of improving things in the future.

**David Beckworth** (3:03)
Yeah. So the review process itself, was it not delayed a bit? I mean, we were told at one time they got pushed back because of other issues. The timing itself was a little unique, wasn't it?

**Will Luther** (3:13)
Yeah. And very unclear when it was going to start, when it was going to conclude. In hindsight, that's a bit strange because they had an outline of what they were going to discuss.
So they knew how many meetings that was going to take. Not clear why they didn't just say in advance, we're going to conclude and reach a decision by August. But yeah, a lot of uncertainty about the process upfront.

**David Beckworth** (3:41)
So what are the big takeaways from your review? We'll get into the details, break these down further as we get into the conversation. But what are the big takeaways that you want the listeners to think about as we move forward in the conversation?

**Bryan Cutsinger** (3:53)
I think one aspect of the paper is just reviewing the actual timeline. So in the paper, we have a review of the summary of economic projections beginning in 2021 and then through 2022
It's clear that the FOMC was looking at this problem as a supply shock, and they continued to look at this as a supply shock, despite the evidence turning against this much earlier than Chair Powell admits the evidence turning against this. Obviously, with your show being a fan of nominal GDP targeting, had they been looking at the level of nominal GDP implied by the 2019 summary of economic projections, nominal GDP was back up to trend by April of 2021, and certainly by July of 2021, it would have been very clear. So one of the main takeaways here is that there was a very serious misdiagnosis of the problem at the time, and it's unclear from the framework review process that they actually internalized the mistake they made in misdiagnosing the problem.