through global financial crises , chaired the Financial Stability Board and provided peerless leadership inside the bank for international settlements and gatherings of central bankers . But before I move on , Mark , I do want to set the record straight on one matter . It may indeed be true , as Forbes magazine has written , that you are a rock star central banker . But I ’ m actually the only central banker with an album on Spotify , so just remember that .
I took my first economic policy job in Washington in 1986 as a senior staff economist with President Reagan ’ s Council of Economic Advisors . I was then a 20-something junior economics professor , but when offered the job , I accepted on the spot . I was hired by a fellow named Michael Moussa , a member of the Council who was a renowned economist from Chicago . And my job was to be his righthand man working on any and all matters in the vast policy priorities of the Reagan administration , which in those days — and it may sound familiar — included tax reform , trade policy and the last immigration bill to pass both houses of Congress . From Mike I learned that I could , should and would aspire to combine thoughtful economic reasoning with concise communication and a focus on producing analysis that was rigorous , relevant and , hopefully , durable .
It was around this time that I began to think about what a career that combined academics , public policy and investment management might look like . And while it would be fair to say I had something like a plan , there was not really an available template to follow . It was becoming increasingly clear to me that there was an enormous chasm opening up between academic finance and the way real-world markets assessed economic data and especially data relating to the Fed and to monetary policy .
Now , at first , I found this state of affairs to be somewhat disheartening , but over time I began to realize that it actually represented an opportunity for economic research . It was within this context that my academic work with Mark Gertler and Jordi Gali on the science of monetary policy came to be conceived and developed . And 25 years later , the papers that we wrote together way back when are still being cited by professors . But it ’ s even more gratifying to me that policymakers today still find them useful . Moreover ,
I would later come to discover that the framework we had developed actually did start to close some of that chasm between academic finance and real-world financial markets .
That discovery began to emerge after I was recruited to join PIMCO in 2006 , several years after my service as Assistant Treasury Secretary , during which time I did advise two Treasury Secretaries — fine men and outstanding individuals — Paul O ’ Neill and John Snow . While at Treasury , I worked on a wide range of issues , two of which Mark made reference to . I ’ m also proud of the contributions my team at Treasury made to introducing “ now casting ,” or real-time economic tracking , into the toolkit of DC policymakers , especially after September 11 , when uncertainty about the economy was elevated .
But after my years at Treasury and career in academia , I was not an obvious PIMCO hire . The company was looking to add a global bond portfolio manager who , perhaps , knew a little economics . I was an academic economist who had never traded a bond in his life and still hasn ’ t . So PIMCO and I agreed to what was in effect a one-year audition , and 18 years later , I ’ m still there and still auditioning . The job description has evolved over time and now includes overseeing the firm ’ s secular investment forum process . It was at this forum in 2014 that I developed with my colleagues the New Neutral Thesis that , because of fundamental changes in the global economy , interest rates including those set by the Fed would peak at much lower levels than had been the case historically . At the time that we were writing about the New Neutral , the Fed itself was projecting that rates would ultimately return to the old neutral , the pre-financial crisis levels .
In the end , the PIMCO call turned out to be correct , with the Fed ’ s policy rate peaking at 2.5 % in December 2018 . Indeed , by December of 2018 I had joined the Fed as Vice Chairman and so I had the chance to see the New Neutral applied in practice . A priority of the Powell Fed ’ s first term was an ambitious review of the Fed ’ s monetary policy framework , which Jay Powell asked me to oversee and which was ratified unanimously in August of 2020 in those dark days during COVID .
I ’ m also proud to have been a member of the Fed that helped to engineer one of the few soft landings in post-war history , with prices rising at 2 %, with GDP growing at trend , with the unemployment rate at a 50-year low and real wage gains the highest at the bottom end of the income ladder . But , of course , that all came to an end in February and March of 2020 . And once the pandemic did strike , the Fed acted decisively and expansively in the spring of that year to prevent what could well have spiraled downward into an economic depression and financial crisis . The depression and financial crisis that never was . It has been said that the Fed ’ s nimble and creative response to the pandemic collapse represents the Fed at its best . And let the records show that I agree .
CONSUELO MACK
Executive Producer and Managing Editor , “ Consuelo Mack WealthTrack ”
I am delighted to say that the 2024 recipient of the Museum ’ s Financial Innovation Award is my good friend and longsuffering interviewee , Chuck Royce . As you will discover , Chuck is very humble . He does not like to bring attention to himself at all , so I have had to harass him to be interviewed over the years , much to my viewers ’ and my benefit .
Chuck has been a big supporter of this museum . Specifically , he likes to do projects that he can get involved in and that he can touch and see the impact of . And so he financed an amazing book — an incredible research project — called the Genealogy of American Finance , which is a history of the 50 largest banks and firms on Wall Street . It was not easy to do because so many of them have been merged away or went under . But the point is that he has made the Museum of American Finance a repository of any research that ’ s going to be done on the history of Wall Street .
Chuck is the chairman of Royce Investment Partners and the portfolio manager of several small-cap funds — it used to be many , many more than several — including lead portfolio manager of his flagship Royce Pennsylvania Mutual Fund , which he has run since 1972 . Since its founding 50 + years ago , Royce has specialized in small-cap stocks . It was one of the first firms , if not the first , to do so and still does to this day . Royce — the firm and Chuck — is the gold standard for small-cap stock investing .
12 FINANCIAL HISTORY | Spring 2024 | www . MoAF . org