The Fed’s befuddling transparency
The Fed is being more transparent. Any questions? Lots, apparently. Wall Street economists have published a flurry of research notes speculating about just how much new information the U.S. central bank will release along with its federal funds forecasts on Wednesday, and what form it will be presented in.
Even Vincent Reinhart, a former Fed economist now at Morgan Stanley, doesn’t know what to make of it:
Many market participants admit to being somewhat confused about the new disclosure policy. The exercise should be viewed as incremental in nature, limited by design flaws, and as likely to cloud as to clarify the public’s understanding of policy intent, at least at the outset. And the mission statement, if one appears, may amount to little more than a strong commitment to motherhood and apple pie among central bankers – i.e., the importance of price stability in the long run – but provide no practical guidance as to near-term policy choices.
Why does the Fed have such a hard time communicating its communications? It’s still not clear what exactly is being released, or when. Another example, from Mike Feroli, economist at JP Morgan and also a former Fed staffer:
As of now our understanding about the release of information is that at 12:30 we get the usual FOMC statement, then at 2:00 we’ll receive the economic forecasts, expanded now to include the above-mentioned forecast for the funds rate, followed immediately thereafter by the Chairman’s press conference. The narrative regarding the prospects for the balance sheet — which was mentioned as a communication enhancement in the last minutes — will apparently not be released until the next FOMC minutes, three weeks after the meeting.
Dana Saporta, a veteran Fed watcher at Credit Suisse, also has some unanswered questions:
It is unclear whether the “accompanying narrative” the Fed has advertised will be released on January 25, as well, or whether we need to wait for the full Summary of Economic Projections to be released along with the meeting minutes on February 15.