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.
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.
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.
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 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 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:
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.
Is Federal Reserve Chairman Ben Bernanke avoiding the word “taper” in order to temper expectations that the U.S. central bank will ratchet down its massive bond buying program? This is one view that’s been widely bandied about in recent days.
Jonathan Spicer contributed to this post
When the Fed adopted thresholds for its low interest-rate policy last December, Fed Chairman Ben Bernanke said they would make “monetary policy more transparent and predictable to the public.” But now that the policy is fully in place, it doesn’t seem that the public and the Fed are predicting the same thing at all. Not even close.