Reuters blog archive
Federal Reserve officials have largely acknowledged by now that leading markets to believe the central bank would reduce its bond buying stimulus in September and then failing to do so was a communications blunder.
For Zach Pandl, a former Goldman economist now at Columbia Management, this means the Fed may have to reshape its guidance to financial markets – even if the exact contours of the changes remain unclear.
Last month's surprise may have increased the odds that the committee will rework its forward guidance in some way (though this will depend importantly on the identity of the next Fed Chair).
Chairman Bernanke appeared to back away from the threshold-based guidance given at the December 2012 and June 2013 meetings, but he was noncommittal about what changes the committee could make in the future. Plus, if Fed officials were to revise their views on the costs and/or efficacy of QE, they may attempt to lean harder on the forward guidance tool.
You have to give Federal Reserve Chairman Ben Bernanke credit for standing his ground on data-dependence. Despite widespread suspicions, including on this blog, that the central bank would begin reducing the pace of its bond-buying stimulus in September simply because the markets were expecting it, the Fed chose to hold off in the face of a still-fragile economy.
Here’s how Bernanke addressed the issue of the market’s surprise at the Fed’s decision at his press conference:
It’s official: Instead of policy doves on the U.S. central bank’s Federal Open Market Committee, there are now only “non-hawks.” A research note from Thomas Lam at OSK-DMG used the term in referring to recent remarks from once more dovish officials like Charles Evans of the Chicago Fed and San Francisco Fed President John Williams.
The implied message from the latest Fed comments (or reticence), namely from the non-hawks, is that policymakers are clearly assessing a broader spectrum of considerations – beyond data-dependence – when mulling over the prospect of tapering in September.
By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Apple has given the finger to the skeptics. That’s not obvious from the stock price, which slid 2.2 percent – knocking some $10 billion off the company’s market capitalization – after Chief Executive Tim Cook and his colleagues unveiled two new iPhone models on Tuesday. But with this round of upgrades, Apple may have just started a mobile payments revolution.
Central banks in Europe have followed in the Federal Reserve’s footsteps by adopting “forward guidance” in a break with tradition. But, as in the Fed’s case, the increased transparency seems to have only made investors more confused.
The latest instance came as something of an embarrassment for Mark Carney, the Bank of England’s new superstar chief from Canada and a former Goldman Sachs banker. The BoE shifted away from past practice saying it planned to keep interest rates at a record low until unemployment falls to 7 percent or below, which it said could take three years.
Ellen Freilich contributed to this post
Talk about getting a word in edgewise. St. Louis Federal Reserve Bank President James Bullard got almost a full sentence in the central bank’s prized policy statement.
Some background: Bullard dissented at the Fed’s June meeting, arguing that, “to maintain credibility, the Committee must defend its inflation target when inflation is below target as well as when it is above target.” The latest inflation figures show the Fed's preferred measure at 0.8 percent, less than half the central bank's target.
from India Insight:
(Any opinions expressed here are those of the author and not of Thomson Reuters)
I sent my first and last telegram over the weekend, thanks to the flood of newspaper reports that warned of India's telegraph service winding up after more than 160 years.
My curiosity was fuelled by memories of Bollywood movies from the 1960s and 70s. On receiving a telegram, the hero's mother either fainted or treated the family to sweetmeats - depending on whether the news was good or bad.
The complexity of non-traditional monetary policy is hard enough to explain to other economists and policymakers. Market participants prefer sound bites, opines Steven Ricchiuto, chief economist at Mizuho Securities USA in a note. As such, the more the Federal Reserve Chairman Ben Bernanke tries to explain the Federal Open Market Committee's position on tapering and policy accommodation the more he confuses the message, Ricchiuto says.
The problem is fundamental to the nature of monetary policy. According to the Chairman, monetary policy accommodation is adjusted through the Fed Funds rate. Quantitative Easing (QE) is a separate policy. Yet he has also said that tapering is simply reducing accommodation, not tightening. These pronouncements work at cross purposes and ignore how the markets read policy. For the markets, QE is an extension of policy into non-traditional tools. Therefore, tapering is tightening. There is no such thing as reducing accommodation for market participants.
The following is a statement from the St. Louis Fed following the decision by its president, James Bullard, to dissent from the U.S. central bank's decision to signal a looming reduction in its bond-buying stimulus program:
Federal Reserve Bank of St. Louis President James Bullard dissented with the Federal Open Market Committee decision announced on June 19, 2013. In his view, the Committee should have more strongly signaled its willingness to defend its inflation target of 2 percent in light of recent low inflation readings. Inflation in the U.S. has surprised on the downside during 2013. Measured as the percent change from one year earlier, the personal consumption expenditures (PCE) headline inflation rate is running below 1 percent, and the PCE core inflation rate is close to 1 percent. President Bullard believes that to maintain credibility, the Committee must defend its inflation target when inflation is below target as well as when it is above target.
For a central bank that likes to tout the importance of clear communication, the Federal Reserve sure knows how to be obtuse when it wants to. Take Bernanke’s testimony before the Joint Economic Committee of Congress last month. His prepared remarks were reliably dovish, emphasizing weakness in the labor market and offering no hint of an imminent end to the current stimulus program, which involves the monthly purchase of $85 billion in assets.
It was during the question and answer session that the real fireworks came. Asked about the prospect for curtailing such bond buys, Bernanke said: