Walsh pushes for reform of the Federal Reserve's meeting mechanism: reducing interest rate decisions and increasing strategic discussions

The Zhitong Finance App learned that starting in 2027, the Federal Reserve will begin to reduce the number of policy meetings per year. For an institution known for its calm, this change may seem significant, but in reality it only returns the Bank of America to the way it used to operate.

Chairman Kevin Walsh has promised to carry out comprehensive changes in the Federal Reserve. He said that by 2028, the Federal Reserve will spend two of its eight meetings each year discussing broad strategies rather than voting on interest rates.

This is the first time since the early 80s of the last century that the Federal Reserve adjusted its calendar of meetings — when it reduced the number of annual meetings from 12 to 8. Although investors are concerned that the new schedule may disrupt the market, supporters say these concerns are untenable and say the move will free up time for policymakers — time previously spent discussing specific topics has been gradually reduced in a series of gradual adjustments.

“This is not without precedent for the FOMC, even recently,” Loretta Meister said. She joined the central bank in 1985, served as Cleveland's Federal Reserve Governor from 2014 to 2024, and has attended most Federal Open Market Committee (FOMC) meetings since 2000.

The move dates back to the days before the financial crisis, and that was a time that Walsh was familiar with — he served as a member of the Federal Reserve from 2006 to 2011. In those years, six of the eight meetings of the Federal Reserve were single-day meetings, mainly reserved for discussing economic and monetary policies and voting on interest rates; the remaining two meetings were added by one day to deal with larger economic topics.

The financial crisis that broke out in 2008 attracted the Federal Reserve's full attention and forced meetings to be longer and more frequent.

In 2012, the Federal Reserve officially adopted a fixed two-day meeting schedule. But half of these meetings are followed by presidential press conferences — a mechanism introduced by Chairman Ben Bernanke in 2011. These types of meetings usually end early to give Bernanke time to prepare for the stage.

After Jerome Powell became chairman in 2018, the press conference was extended to every meeting. Much of the work then shifts to the first day, which usually ends after officials vote on interest rates.

Meester said that in the remaining discussion time, it is becoming more and more difficult not only to deal with major and substantive issues, but also to make difficult decisions on monetary policy. “It's nice to spend a little more time actually having these conversations,” she said.

Institutional changes

Walsh has said he hopes to re-examine many aspects of the Fed's operations, from data used to evaluate the economy to its communication methods. Many of his larger ambitions still require consideration and approval by his colleagues.

Earlier this year, Walsh set up a working group composed of external experts to examine five key areas of the Federal Reserve's operation and put forward new ideas. The relevant report is expected to be released around the end of this year.

Ellen Mead, a professor of economics at Duke University and a former Federal Reserve advisor, said, “If we want to make progress on a wider range of issues, we must make time for this.” She attended many FOMC meetings between 2011 and 2020.

However, Mead pointed out that the details of the new calendar will be critical. The Federal Reserve can maintain the current rhythm of meetings every six to seven weeks, designating only two of them as non-voting meetings; it can also completely restructure the schedule and arrange the six voting meetings evenly every two months, interspersing two special meetings between them.

Richmond Federal Reserve Chairman Tom Barking appreciated the idea of scheduling meetings every two months on Thursday.

“I really don't like going out after the FOMC meeting. I have an employment report on Friday,” Barkin said about the current calendar. “If you switch to once every two months, you can actually grasp complete data twice in a row and make decisions based on two data cycles.”

Barkin said that this adjustment is not a major shift for the central bank. William Dudley, who was the president of the New York Federal Reserve from 2009 to 2018, shared the same opinion, saying that there is no “magic number” for the number of meetings. More importantly, he believes, the market can understand how the Federal Reserve might react under different economic conditions — what economists call a “reaction function.”

“I'm not sure if these changes are actually significant in making the Federal Reserve a more efficient institution,” Dudley said of these adjustments.

Walsh has said that the current frequency of meetings and the scheduling of press conferences after every FOMC meeting has caused the Fed observers and the market to focus too much on the incremental actions of decision makers.

Those major issues — such as how productivity or demographic structure is changing and how the economy can withstand shocks — are ultimately more important, he said.

Both Mester and Mead said that reducing the number of voting meetings and consciously spacing them throughout the year will allow policymakers to collect more economic data between interest rate decisions. It also avoids embarrassing moments, such as last week — critical third-quarter economic data was released just one day after officials voted on interest rates; and that meeting was held just a few days before the midterm elections, casting a political shadow over the Fed's decision.

However, reducing interest rate meetings also has disadvantages. First, the pace of adjustment may force the Federal Reserve to change the schedule for issuing economic forecasts and interest rate forecasts — currently these forecasts are published at a regular quarterly pace, corresponding to every other FOMC meeting.

Monetary Policy Analytics economist Derrick Tang wrote in a report to clients that as “actual” meetings decrease, officials may also adjust interest rates more frequently by a margin greater than the traditional 25 basis points. Even the mere expectation of more drastic changes could trigger greater market volatility.

Georgetown University economist Masaaki Yoshimori argues for a shift to fewer meetings with better timing. He said that while making such decisions, the Federal Reserve should clearly express its intention to hold additional meetings when needed.

“The risk associated with reducing from eight meetings to six is not necessarily enough on average for six regular meetings,” said Masaaki Yoshimori, who met with Walsh in August, in a research paper. “Instead, during a longer period of time between meetings, unintended disturbances may occur.”