The Fed’s New Communications Regime | Steven J. Davis, Mary Daly | Hoover Institution

Steven J. Davis (0:10)

Welcome to Economics Applied from the Federal Reserve Bank of San Francisco. I'm your host, Steven Davis, Senior Fellow at the Hoover Institution. With me is a special guest, Mary Daly. She's President of the Federal Reserve Bank of San Francisco.

Welcome, Mary.

Mary Daly (0:25)

Glad to see you again, and thank you for coming here to San Francisco Fed.

Steven J. Davis (0:29)

Yeah, maybe I should welcome myself to the Fed, but in any case, I'm happy to be here. We last spoke in this format at the Jackson Hole Economic Policy Symposium in August 2025

We talked about central bank communications. I'll come back to that in a second. The setting was a little bit different. Now we're in your studio, great lighting, great audio. Last time, audio was a little more challenging, but we had the Grand Teton Mountain Range.

Mary Daly (0:57)

Exactly. And we had to discipline ourselves not to get distracted by that view.

Steven J. Davis (1:01)

That's right. That's right. So hopefully we can... Well, I think we did okay last time.

Mary Daly (1:04)

We did.

Steven J. Davis (1:05)

We'll try to focus even more this time. So last time we did have a pretty meaty discussion about central bank communications and I'm not going to try to review all that, but two things came out of that discussion very clearly, I think.

First, the Fed has changed its communication regime, dramatically over the decades, even over the course of your career and mine, as we discussed. Second, there are a lot of subtleties that aren't apparent on the surface in how the central bank should communicate with the broader public. It gets into issues of transparency, accountability, credibility, and trust, and all that. So for those who really want to get into that kind of broad sweep historical perspective, they can watch our earlier conversation. But what I wanted to ask you about today is something pretty timely at the moment, which is how, if at all, has the communications regime at the Fed shifted under the chairmanship of Kevin Warsh or is shifting relative to what the regime was under Jerome Powell?

Mary Daly (2:11)

Sure.

You're right. I think in big historical swaps, because that's been a dominant development in my career, is we went from communicating almost not at all to communicating quite a bit.

And what I like to do is opposed to putting it to chairman and chairs is put it to time periods. So in time periods where we have a lot of clarity or when the zero lower bound or we have a financial crisis or we have a pandemic, again, the zero lower bound, well, we communicate a lot and we learn a lot about what communication can do for us.

The place where I think we're at now is to step back from all of those learnings over the last 30 years and ask, when do we use which tool? And are tools just because you have them always good to use or do they move at cross purposes to your principles of accountability, transparency, credibility, and trust? Importantly, I'll add to that list, which I absolutely believe in, the part about clarity. You know, we want a high signal to noise ratio, and when we're communicating a lot, but the signal to noise ratio is low, then we have to step back and ask ourselves, is this really doing what we want? Is it building trust? Is it leading to more credibility? Do we have transparency and ultimately accountability? So right now, I'd say that the committee as a whole is stepping back. The chairman wants to step back. We want to get external perspectives from the task force that the chairman named and just actually do a rigorous review of not only how should we communicate, but what is the right communication at the right point in time? You know, notably other central banks are doing the same thing. Right. You know, Madame Lagarde did this. Christine Lagarde did this for the ECB. Others have announced similar ways of thinking. And there's a big discussion about should we give forward guidance? Should we not? I'll tell you a little bit about where I stand without having all the input from the task force in our discussions is, I think that tools are easy to think you always use them. You know, there's even a saying about that, if I have a hammer, I'm always looking for a nail. But central banks really have to be careful about the types of things we're willing to say with definitiveness, because people make plans based on our definitiveness. And if we're not sure, that can be at cross purposes to our goals.