Recently retired St. Louis Federal Reserve Bank president William Poole made hard-hitting comments on government sponsored enterprises, Fed communication strategy, and other issues in the bank’s annual report released Friday.

In a “retrospective conversation with William Poole,” the outspoken former policymaker lamented that little “constructive” has been accomplished in reforming the GSEs. He called Fed communication “muddled” and pressed the case for a formal inflation target

Poole also defended the historic regional structure of the Federal Reserve system at a time when its current pertinence is being questioned. Unsurprisingly, he also reiterated his long-standing aversion to inflation.

Poole retired at the end of March after 10 years as president and was replaced by St. Louis Fed economist James Bullard.

Starting in 2003, before former Fed chairman Alan Greenspan spoke out on the risks attending the government-sponsored enterprises, Poole cautioned about Fannie Mae’s and Freddie Mac’s low capital backing, their implicit government subsidies, and other risks. He also continued regularly to issue strongly worded warnings about the systemic risks which the GSEs posed.

In the annual report interview he explained why he chose to fight that battle. Recalling his days as a member of President Reagan’s Council of Economic Advisers in the early 1980s, Poole said: “We had many discussions and were all very well aware of the problems being covered up in the savings and loan industry. That experience led me to rather deep regret that I had not raised that issue publicly.”

“I wish I would have somehow found a way to raise that [S&L] issue and improve public consciousness,” he said. “If I had been able to do that in 1982 or 1983, and if there had been some earlier action, it might have saved taxpayers quite a bit of money.” 

Despite his and others’ calls for legislative action on the GSEs, Poole said: “I don’t think anything constructive by way of reform has happened since.”

“I don’t take credit for disclosing the accounting irregularities” at Fannie and Freddie, he continued. “But when I look back, is there something I wish I had said or not said? The answer is no.”

Regarding Fed communication, Poole said, “There is more work to be done.” Despite improvements, such as immediate disclosure of Federal Open Market Committee interest rate decisions starting in 1994, Poole added: “The communication since then, however, has sometimes been a bit muddled.”

“There is a huge amount of unfinished business in trying to define and communicate the Fed’s reaction function,” he said — how policymakers adjust their policies in response to new economic data and other information.

— Market News International

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