This post An Insider’s Insider to Advise the Fed appeared first on Daily Reckoning.
Sometimes the most important news is buried so deep it’s not even news. A certain story may be the most important market development by far, but if no one notices and no one understands the significance, it hardly qualifies as news.
We had an event like that last week. The most important financial story I have read in a long time went completely unnoticed. It was not reported in the mainstream media. You will not hear it discussed anywhere, you will not see it reported anywhere.
I’m talking about the news that Jon Faust will be a part-time advisor to new Fed chairman Jerome Powell.
Your first reaction upon reading this is probably, “Who’s Jon Faust, and why should we care if he’s advising the Fed?”
The answer is that Faust is an “insider’s insider” at the Fed. He’s the most powerful monetary expert that no one has ever heard of. He’s actually one of the top monetary economists in the world. Knowing Faust’s backstory is the key to knowing what Fed monetary policy will be going forward.
Faust is a monetary economist with a Ph.D. from the University of California, Berkeley, the same school where Janet Yellen taught for many years. Faust’s thesis adviser was Janet Yellen’s husband, the Nobel Prize winner George Akerlof. Few economists are as close to Yellen as Faust. The same is true of Bernanke, who holds Jon Faust in the highest regard.
From 1981–2006, Faust worked as a staff economist at the Federal Reserve Board in Washington, D.C., eventually rising to assistant director of the Division of International Finance. In 2006, Faust left the Fed to become director of the Center for Financial Economics, CFE, at Johns Hopkins University in Baltimore.
I was one of the original benefactors of CFE and in that capacity was involved along with others in recruiting Jon to join CFE from the Fed. He happens to be a friend of mine. I know him well. A long profile of my discussions and interactions with Jon over the years is found in Chapter Six of my most recent book, The Road to Ruin.
In 2012, Faust was named “special adviser” to the Federal Reserve Board at the request of then-Chairman Ben Bernanke. He remained in that role until August 2014, a period that covered the transition from Bernanke to the new Fed Chair Janet Yellen in February 2014.
Faust’s Fed tenure from 2012–2014 included critical developments such as the launch of QE3, implementation of the “taper” from 2013–2014 and preparation for the interest rate “liftoff,” which finally arrived in 2015 not long after Faust left.
Faust’s main task, as requested by Bernanke and continued by Yellen, was communication on monetary policy. This did not mean communication in the usual sense of public relations or press liaison. It meant communication about monetary policy to manage market expectations.
Bernanke wanted a “no surprises” policy at the Fed. Bernanke might’ve wanted to ease policy, as he …read more
Source:: Daily Reckoning feed
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