'Should Central Bankers Stick to Talking about Monetary Policy?'

Simon Wren-Lewis on whether "central bankers need to keep quiet about policy matters that are not within their remit":

Should central bankers stick to talking about monetary policy?: Few disagree that the recent remarks on corporate governance and investment made by Andy Haldane (Chief Economist at the Bank of England) are interesting, and that if they start a debate on short-termism that would be a good thing. As Will Hutton notes, Hillary Clinton has been saying similar things in the US. The problem Tony Yates has (and which Duncan Weldon, the interviewer, alluded to in his follow-up question) is that this is not obviously part of the monetary policy remit.

Haldane gave an answer to that, which Tony correctly points out is somewhat strained. ...

I have in the past said very similar things to Tony...

However I am beginning to have second thoughts about my own and Tony’s views on this. First, it all seems a bit British in tone. Tony worked at the Bank, and I have been involved with both the Bank and Treasury on and off, so we are both steeped in a British culture of secrecy. I do not think either of us are suggesting that senior Bank officials should never give advice to politicians, so what are the virtues of keeping this private? In trying to analyse how policy was made in 2010, it is useful to have a pretty good idea of what advice the Bank’s governor gave politicians because of what he said in public, rather than having to guess. ...

It is often said that central bankers need to keep quiet about policy matters that are not within their remit as part of an implicit quid pro quo with politicians, so that politicians will refrain from making public their views about monetary policy. Putting aside the fact that the ECB never got this memo, I wonder whether this is just a fiction so that politicians can inhibit central bankers from saying things politicians might find awkward (like fiscal austerity is making our life difficult). In a country like the UK with a well established independent central bank, it is not that clear what the central bank is getting out of this quid pro quo. And if it stops someone with the wide ranging vision of Haldane from raising issues just because they could be deemed political, you have to wonder whether this mutual public inhibition serves the social good.

The danger is that the Fed will become politicized as a result of taking sides on hotly debated political/policy questions. This is from a post in February of 2007:

...Should the Federal Reserve Chair talk only about matters directly related to monetary policy, or is it okay to discuss broader issues such as inequality, minimum wages, and Social Security without making the direct connection to monetary policy evident?...:

Willem Buiter: Martin's Column "Why America will need some elements of a welfare state", refers extensively to a recent speech by Ben Bernanke...

I believe it is a serious mistake for central bankers to express public views on politically contentious issues outside their mandates. The mistake is no less serious for being made so commonly by central bankers all over the world.

Central bank Governors have a lengthy and unfortunate track record of holding forth in public on matters that are outside the domains of their mandate (in the case of the Fed, monetary policy and financial stability)... With the exception of the Governors of the Bank of England and the Reserve Bank of New Zealand, every Governor on the block appears to want to share his or her views on necessary or desirable fiscal, structural and social reforms. Examples are social security reform and the minimum wage, subjects on which Alan Greenspan liked to pontificate when he was Chairman of the Board of Governors of the Federal Reserve System. Jean-Claude Trichet cannot open his mouth without some exhortation for fiscal restraint or structural reform rolling out. In the case of Chairman Bernanke's speech, equality of opportunity, income distribution, teenage pregnancy and welfare dependency are clearly not part of the (admittedly broad) three-headed mandate of the Fed: maximum employment, stable prices and moderate long-term interest rates. ...

When the Head of a central bank becomes a participant, often a partisan participant, in public policy debates on matters beyond the central bank's mandate..., the institution of the central bank itself is politicised and put at risk of becoming a partisan-political football. This puts at risk the central bank's operational independence in the management of monetary policy and in securing financial stability.

Central bankers, Mr. Bernanke included, should 'stick to their knitting' (if I may borrow Alan Blinder's phrase). Being the head of an institution with the national and global visibility of the Fed or the ECB gives one an unparalleled platform for addressing whatever one considers the great issues of the time. The temptation to climb that unique pulpit must be near-irresistible. Nevertheless, unless the text for the sermon concerns monetary policy or financial stability, that temptation is to be resisted in the interest of the institutional integrity and independence of the central bank.

As I've said before, I agree.

Fiscal policy has a clear connection to monetary policy through the government budget constraint, and there are also times -- e.g. recently -- when monetary policy needs the help of fiscal policy (if the Fed is forced to shoulder the entire burden, it can bring other risks). So I have no problem with the Fed chair raising fiscal policy issues (as Bernanke did, though not forcefully enough perhaps). I have a bit more trouble when the topic is inequality (e.g. Yellen's big speech on this -- and the subsequent reaction from the right). It's harder to see how that is connected to the Fed's policy mandate, and with Republicans already out to take away as much of the Fed's powers as they can, it was a bad time to tick them off.

Maybe this is too cautious. Perhaps Federal Reserve officials should feel free to address whatever topic they'd like. But the Fed's independence was instrumental during the Great Recession -- without it, monetary policy would have been as terrible as fiscal policy and things would have been much worse -- and I'd rather not take any risks.