Communications breakdown at the Fed?

August 11, 2011

Last month the U.S. Federal Reserve published a new communications policy designed to keep the dissonant voices of central bank officials in check and prevent leaks of market-sensitive information. Among the rules, is a blackout period from the Tuesday before any policy-setting meeting to midnight of the Thursday after during which participants must “refrain from expressing their views about macroeconomic developments or monetary policy issues in meetings or conversations with members of the public.”

So it was curious that on Wednesday, just a day after three members of the Fed’s policy-setting committee revolted against Chairman Ben Bernanke’s pledge to keep interest rates low for the next two years,  one of the dissenters  — Minneapolis Fed President Narayana Kocherlakota – suggested to the Wall Street Journal that his revolt may be only temporary.

On this occasion, I dissented from the Committee’s decision. Regardless, I have nothing but the highest regard for the acumen, integrity, and ability of all other FOMC meeting participants.

The WSJ asked for comment on the Chairman’s leadership. Philadelphia Fed President Charles Plosser declined to comment. Dallas Fed President Richard Fisher, who helped write the Fed’s new communications policy, stuck to the question in his response, saying  “I think very highly of Ben, admire him, appreciate his style, find him totally honest and inclusive, and also respectful of others’ principles and views.”

Only Kocherlakota mentioned the dissent specifically, even though, his spokeswoman said, he wasn’t asked. She declined to comment on whether the comment violated the blackout period. The Federal Reserve Board, which set the new rules, also declined to comment on whether they had been violated.

Kocherlakota expanded by praising Bernanke further.

Ben Bernanke is an outstanding chairman for the Federal Reserve Board of Governors. He actively cultivates the expression of disparate views, and that dialogue leads to better monetary policy choices for the United States.

One wonders what message the two hawks might have been sending to the doves on the committee. Olive branch, anyone?



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