Warsh Redesigns Central Banking with British Lessons

Kevin Warsh, former Federal Reserve governor, has been redesigning the workings of central banks. In 2014, he conducted an independent review for the Bank of England after a British lawmaker questioned the bank's practice of destroying recordings of monetary-policy meetings.

The review resulted in a 64-page guide on how central bankers should think, argue, decide, and explain themselves. The report focused less on interest rates and more on institutional changes. In line with his new role as Federal Reserve chairman, Warsh has begun reconsidering the Fed's meeting schedule, communications, and internal policy process.

Warsh drew from his experience in Britain 12 years ago. He found that a good central bank needed two distinct kinds of meetings: one for deliberation and another for decision. The first day was informal, with members interrupting each other to test competing explanations and puzzles in the data. This 'inquiry' aimed to discover what members should think.

The second day was more formal, with members having absorbed staff analysis and heard their colleagues' arguments. They stated their preferred policy, assembled evidence supporting it, and attempted to persuade the rest of the committee. Warsh called this 'advocacy,' which aimed to decide what the central bank should do.