We are pleased to publish this guest commentary about the Federal Reserve and the discussion currently underway about proposed changes concerning the Fed. Its author, Robert Hetzel, served as a senior economist at the Federal Reserve Bank of Richmond and is now retired. We thank Bob Hetzel for sharing his thoughts with our readers.
“Rules and a Stable Nominal Anchor” is a thoughtful, substantial piece. (It contains some mathematical symbols, which may not display properly in the body of a post, in a section discussing the Taylor rule; so we have made the full paper available as a PDF.) Hetzel suggests that more effective communication could help the public and policy makers better understand the Fed’s tools, how they are used, their limits, and the Fed’s crucial role in maintaining the monetary stability essential to a functional economy. Communicating more clearly the Fed’s decision-making framework could enable markets to recognize and anticipate consistency over time.
The introduction and the link follow.
Rules and a Stable Nominal Anchor
Robert L. Hetzel
September 25, 2025At its September 2025 meeting, the FOMC lowered the funds rate by 25 bps and signaled more reductions to come. The press conference of Chair Powell following the meeting characterized the decision making process that led to the decision as standard. The FOMC goes meeting by meeting and, in a “data dependent way,” evaluates which one of its two dual mandates, price stability or maximum employment, is of more concern. It then adjusts its funds rate target appropriately.
The funds rate reduction followed a five-year reformulation of the consensus statement (“Statement on Longer-Run Goals and Monetary Policy Strategy”) in August 2025. For markets, the consensus statement is supposed to explain the consistency in how the FOMC responds to incoming information on the economy. Markets will then understand better how to adjust the yield curve in response to such “news” on the economy. Does the context provided by this consensus statement explain the September 2025 funds rate reduction? The 2025 consensus statement was preceded originally by a statement formulated in 2012 and then a revision in 2020. The argument here is that to understand the September 2025 funds rate reduction one needs to place it in the context of the change of views reflected in the abandonment of the 2012 statement in favor of the 2020 statement.
Section 1 provides the economic background for the September 2025 policy action. Section 2 reviews its defense by FOMC chair Powell. Section 3 examines the three consensus statements: 2012, 2020, and 2025. It then asks whether these statements and their evolution can explain the September 2025 funds rate reduction. Section 4 reviews the criticism of Treasury Secretary Scott Bessent of the Federal Reserve. The section continues by arguing that the Fed could raise the level of the public debate by amplifying the consensus statement through exposition of a simple conceptual framework for policy complemented by explicitness about the consistency in policy over time. Section 5 concludes with comments on Fed independence.
