Loretta Mester on How to Improve the Fed’s Operating Framework

Loretta Mester was president and CEO of the Federal Reserve Bank of Cleveland from 2014 through June of 2024, and she is a 39-year veteran of the Federal Reserve System. Loretta is also currently an adjunct professor of finance at the Wharton School at the University of Pennsylvania. She joins David on Macro Musings to talk about her time as Fed president and a recent paper she delivered on the Fed’s operating system. David and Loretta also discuss the ongoing battle against inflation, what to expect from the upcoming Fed framework review, and much more.

Transcript for this week’s episode.

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Loretta’s Cleveland Fed profile

Loretta’s Wharton profile

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Related Links:

*The Fed’s Ample Reserves Monetary Policy Operating Framework: It Isn’t as Simple as it Looks* – Remarks by Loretta Mester for the Panel on The Conduct of Monetary Policy: Evolution from Free Reserves to the Corridor and Floor Systems at the Shadow Open Market Committee 50th Anniversary Conference

*Reserve Demand Elasticity (RDE)* by the Federal Reserve Bank of New York

Timestamps:

(00:00:00) – Intro

(00:02:18) – Loretta’s Career Path and Tenure at the Cleveland Fed

(00:10:42) – The Ongoing Battle Against Inflation

(00:17:53) – Evaluating FAIT and What to Expect from the 2024-25 Fed Framework Review

(00:26:03) – Corridor vs. Floor: The Evolution of the Fed’s Operating System and its Policy Implications

(00:41:31) – Estimating the Demand for Bank Reserves

(00:45:57) – Addressing Over-reliance on the Fed in the Interbank Market

(00:52:45) – Loretta’s Thoughts on Central Clearing and Increased Use of the Discount Window

(00:55:23) – Outro