This is the Kato Daily Podcast for Saturday, August 24, 2024.

I'm Caleb Brown.

The Federal Reserve's decision-making is pretty opaque, and when you hear calls to audit the Fed,

it's important to understand that it's Fed policy, Fed decision-making that is at issue.

It's not just a matter of bookkeeping or accounting. Cato's J. Kettos J. Kettia details of potential reform that might inject a large measure

of transparency and even some stability into American monetary policy. J, for a long time it looked like the Federal Reserve was using something like a modified

Taylor rule in its determinations about monetary policy,

then it sort of looked like they were not using, at least it was not obvious what rule they might be adhering to in making

decisions about monetary policy. Do you have a sense of what changed?

It's really difficult to tell this is specifically the problem when it comes to the Fed, which is that

it's very hard to tell how they're making their monetary policy decisions under any sort of framework anymore.

It's particularly frustrating because, you know, if you go back historically to the 80s, once

Paul Volker becomes Fed chair and the Fed takes a more active role in conducting monetary policy

to stabilize the economy, it seemed like for the most part for the first about 10 years they were

following a rule.

And in fact I have a paper here at CMFA that shows

they followed this rule all the way through

just before just around the financial crisis in the mid 2000.

Now, there's a lot of evidence that suggests that when the Fed follows a rule, economic outcomes

tend to be much better than when they're acting discussionarily and you don't really know

what's going on with the way they're doing monetary policy.

Okay, so with the Fed using a rule

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