Rules, discretion, and the price of uncertainty

National Review puts the question plainly: pure unpredictable discretion is no way to operate an economy. I will not pretend to have designed the Federal Reserve or to remember every innovation in central banking since my own time. But I know this: the argument being made is not new, and it is not wrong.

When I built the first Report on Public Credit, the animating principle was simple enough to state and agonizing to execute — credibility is the product, not a by-product, of monetary and fiscal order. A government that cannot be predicted will be discounted. A bank whose conduct cannot be anticipated will be mistrusted. Mistrust raises the cost of every dollar borrowed, every bond issued, every enterprise financed. The tax on uncertainty is invisible on any single transaction and ruinous in aggregate.

The modern debate, as National Review frames it, is between rules-based monetary policy — some version of a formula that ties the central bank's instrument rate to observable economic conditions — and the broad discretionary latitude the Federal Reserve has exercised, especially since 2008. I have no quarrel with the exercise of judgment; I was not a man who feared executive discretion when it was bounded by law and accountable to the public. What I do quarrel with is discretion that is accountable to no legible standard at all. That is not flexibility. That is opacity dressed in the language of expertise.

Here is the practical consequence, as I read it: when markets cannot anticipate the central bank, they price that uncertainty into long-term interest rates. Higher long-term rates mean higher borrowing costs for the Treasury, for industry, and for infrastructure finance. Every point of unnecessary premium on a thirty-year bond is money that does not go into a semiconductor fab, a rail corridor, or a shipyard. That is a real cost to American productive capacity — the very thing I spent my career trying to build.

The National Review piece calls for a reexamination of monetary policy rules, not their rigid imposition. That is the prudent position. I would press further: the Federal Reserve should be required to state its framework publicly, to defend departures from it before Congress in real time, and to submit its balance sheet decisions to the kind of scrutiny I demanded of the Treasury in my own day. Accountability is not an enemy of vigorous institutional action. It is its precondition.

My recommendation: Congress should open hearings — not to micromanage interest rate decisions, which require technical judgment I would not presume to dictate — but to establish that the Fed must publish a rule, explain deviations from it with speed and specificity, and bear the burden of proof when it departs. Sound money requires not just sound policy but legible policy. A republic that cannot read its own monetary signals is flying blind, and the bill for that blindness comes due on every future bond auction.