A Term at the Fed: An Insider's View

by Laurence H. Meyer

As a governor of the Federal Reserve Board from 1996 to 2002, Laurence H. Meyer helped make the economic policies that steered the United States through some of the wildest and most tumultuous times in its recent history. Now, in A Term at the Fed , Governor Meyer provides an insider's view of the Fed, the decisions that affected both the U.S. and world economies, and the challenges inherent in using monetary policy to guide the economy. When Governor Meyer was appointed by President Clinton to serve on the Federal Reserve Board of Governors in 1996, the United States was entering one of the most prosperous periods in its history. It was the time of "irrational exuberance" and the fabled New Economy. Soon, however, the economy was tested by the Asian financial crisis, the Russian default and devaluation, the collapse of Long-Term Capital Management, the bursting of America's stock bubble, and the terrorist attacks of 9/11. In what amounts to a definitive playbook of monetary policy, Meyer now relives the Fed's closed-door debates -- debates that questioned how monetary policy should adapt to the possibility of a New Economy, how the Fed should respond to soaring equity prices, and whether the Fed should broker the controversial private sector bailout of LTCM, among other issues. Meyer deftly weaves these issues with firsthand stories about the personalities involved, from Fed Chairman Alan Greenspan to the various staffers, governors, politicians, and reporters that populate the world of the Fed. Since the end of his term, Meyer has continued to watch the Fed and the world economy. He believes that we are witnessing a repetition of some of the events of the remarkable 1990s -- including a further acceleration in productivity and perhaps another bull market. History does not repeat itself, yet Meyer shows us how the lessons learned yesterday may help the Fed shape policy today.

Genres: Economics, Nonfiction, Finance, Memoir

Hardcover

First published July 6, 2004

Reviews

[Frank Stein · Rating 4 out of 5]

This is a chatty, earnest, honest, and ultimately rewarding book. Instead of the usual Washington kiss-and-tell about bureaucratic infighting, the author's obvious love for his job comes through. He says early in the book that he has no scores to settle: "Sorry. I had a great time at the Fed. I loved every day." This is made obvious when, at the end of his first Fed meeting, he blurts out "Gee, this was even more fun than I thought it'd be," to general laughter. His enthusiasm is infectious.

Laurence Meyer was an academic who turned his economics skills into a successful economic forecasting business, later known as Macroeconomic Advisors. His work led him to be nominated as one of the seven Federal Reserve Board Governors in 1995, after the Republican Senate had made clear that Clinton's first choice, Felix Rohaytn, was too political. Ironically, Clinton appointed Meyer because he thought Meyer would fight Chairman Alan Greenspan's tendency to raise interest rates, but the two Fed members quickly switched sides, with Meyer becoming identified as the most powerful "hawk" on the committee, and Greenspan becoming the most obvious "dove." Almost all of the book is taken up with their debates about raising or lowering interest rates, and about the Fed's regular release of its "policy bias" for the future, called either symmetric or asymmetric biases, about where rates would likely to go.

Much of the debate about rates and biases has to do with Greenspan's and Meyer's mutual perceptions of the infelicitously titled NAIRU, or the Non-Accelerating Inflation Rate of Unemployment. Meyer early on believes that about 5.5% was as low as unemployment could go without igniting inflationary pressures, while Greenspan himself doubted the very existence of the NAIRU. In the end, Meyer admits he was wrong and strong productivity growth meant unemployment could go to 4% in the late '90s without inflation, but by then Greenspan realized that any lower would become problematic, and they both urged raising rates to end the economic boom.

Much of the book, written in 2004, is surprising in that we forget how recently some major Fed decisions took place. At Meyer's first meeting in 1995, Janet Yellen convinced Greenspan to make a steady 2% inflation rate the Fed's implicit target for the first time, instead of the zero inflation Greenspan wanted, but the goal was kept secret. In an era of inflation-targeting, a 2% inflation rate is nearly sacrosanct, but it is strange to think how close we came to formalizing zero. Meyer also discusses how after he left the Fed in 2002 Ben Bernanke began advocating large purchases of assets in case the economy fell into deflation, and Meyer seems a little amazed at the idea. It was only 6 years later Bernanke would put those ideas into practice.

There's lots of individual stuff here too. Like Alan Blinder described, Meyer thought the Greenspan Fed could be a little lonely, with little contact amongst staff, board members, and the Chairman. Greenspan himself was always distant, but invariably friendly and funny when talking with Meyer or others. It's clear, however, that Greenspan ran the show. As Meyer said, he's not sure he influenced a single decision at his entire time there, since the Chairman always seemed to get his way.

Despite becoming repetitive in its later parts, this book provides the reader a good inside look at the American government's most powerful and secretive institution.

[Eduardo Contreras · Rating 5 out of 5]

A Term at the Fed is a book that I think does a great job of sharing the experience of someone working inside the Federal Reserve. Lawrence Meyer explains key economic concepts with clarity—ideas that still resonate today, such as how productivity growth can be driven by innovations like artificial intelligence, how to manage financial crises, and the dangers of a deflationary bubble.

At the same time, he balances these technical discussions with humor and a sense of humanity, which makes the narrative engaging and relatable. The book also offers some insight into Alan Greenspan, whose approach to monetary policy has often seemed so enigmatic.

Overall, it’s a good read—both informative and entertaining.

[Dan Milo · Rating 4 out of 5]

The most transparent account of the inside of the Federal Reserve I have read. My only complaint is that the book gets a bit dry at parts. I would recommend reading this only after familiarizing yourself with the economic history of the late 90's and early 2000's.

[Catherine Johnson · Rating 5 out of 5]

A fabulous book: short, too the point, readable, and almost an education on the workings of the Fed in and of itself.

I read A TERM AT THE FED while working on a project about the basal ganglia, and from that perspective I continually saw the difference between what Alan Greenspan believed he was doing (fighting inflation) and what he was actually doing (promoting full employment).

Laurence Meyer, who was Bill Clinton's appointee, reports that he himself was quite worried employment would grow too high.

Greenspan brushed worries about 'over-employment' aside.

From Meyer's last chapter - "Alan, I Hardly Knew You":

"Greenspan also believes in using monetary policy to counter adverse shocks that may pull the economy away from full employment. This position is not apparent to most observers--perhaps not even to Greenspan himself. The Chairman, after all, frequently waxes eloquent on the importance of price stability--and almost never on the role of monetary policy in encouraging full employment. Still, the Greenspan FOMC has always positioned itself to respond quickly to shocks that might threaten full employment. During my term, we saw the Greenspan FOMC respond in this way during the Asian crisis, Russia's devaluation, and the collapse of LTCM. Greenspan's emphasis on restoring full employment was also evident after the slowdown and recession that followed the bursting of the equity bubble.

The first two principles—anchoring inflation expectations and responding aggressively to departures from full employment—may appear to be somewhat contradictory. Policymakers who emphasize price stability, for example, may be reluctant to push the economy aggressively back to full employment, fearing a rise in inflation if they overshoot full employment."

[Lance Cahill · Rating 3 out of 5]

A mixed bag. Save time and skip the first half. The second half (specifically starting with coverage over the Asian Crisis) has much better coverage that highlights monetary policymakers face with incomplete information and competing models of how monetary policy affects the broader economy. Meyer's discussion in the last few chapters are a good popular introduction over the relative merits of inflation-targetting and forward guidance and unconventional policy tools (early discussions of what would constitute a large portion of contemporary 'quantitative easing' policies).

There are a few teeth-grinding asides in the book where the reader is unsure whether Meyer could use a few hours spent with Emily Post's "Etiquette" or his ability to deliver jokes could have used some editorial refinement. One example comes into mind. Meyer is describing the confirmation process and how one senator put a hold on his confirmation until the Senate agreed to a debate on the merits of a certain policy: "The lond hold gave me time to negotiate the sale of my interest in my consulting firm to a St. Louis-based brokerage. That transaction helped make life a little easier financially for my family during my years on the Board. So, Senator, thanks."

[Iworld1991 · Rating 3 out of 5]

Got to know this book from Mankiw's paper "Macroeconomist as a scientist and engineer". Generally it is good to obtain an insider's perspective upon the daily work of the federal reserves board, FOMC especially as it is written by a former Fed governor. I found Mayer interesting because he has been best known for his reputation for starting a private consulting firm, what is now called Macroeconomic Advisors. The model adopted by MA has been rather famous across the policy domain and academia, which seems to me a bit strange. I would have not expected so large impact a private forecasting firm could have upon the policymaking field. All above said, I don't like the way Mayer tells his own stories. Autobiography would never be as true and honest as you could think. It is always more like a chance to showing-off, self-defense and self-adorement.

[Moming]

a good side story about the Fed and its policy setting. From it readers can tell that Greenspan failed to foresee the Internet bubble but not easing monetary policies early enough. After the bubble, however, he kept interest rates too low for too long. Will be more interesting if read this book with Greenspan's autobiography together.