MacroScope

The chairman’s challenge: Bernanke says ‘taper,’ markets hear ‘tighten’

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:

If we see continued improvement and we have confidence that that’s going to be sustained then we could in the next few meetings … take a step down in our pace of purchases. If we do that it would not mean that we are automatically aiming towards a complete wind down. Rather we would be looking beyond that to see how the economy evolves and we could either raise or lower our pace of purchases going forward.

Those three little words, “next few meetings,” proved rather costly to global financial markets – about a trillion bucks a word in stock value losses.

Was it a miscalculation or a trial balloon, investors wondered. Rather hawkish comments from normally dovish regional Fed presidents like Eric Rosengren of Boston and John Williams of San Francisco seemed to cement the notion that this was a concerted message. It remains to be seen how Bernanke will navigate the issue at Wednesday’s press conference, one of only four per year.

Put your rate hike where your mouth is

Jonathan Spicer and Van Tsui contributed to this post.

This week, for the second time ever, the U.S. Federal Reserve published policymakers’ forecasts for when the central bank should start raising rates. The chart suggested a split Fed, with three policymakers expecting a rate rise this year, three next year, seven in 2014 and four in 2015. That’s useful information, as far as it goes.

But as much as the Fed has embraced transparency in recent years, it stopped short of saying which policymaker backs a rate hike in which year – a key bit of data for grasping where the voters on Fed Chairman Ben Bernanke’s policy-setting committee stand, and how their positions shift over time.

Below is the bar graph that the Fed published Wednesday, with Reuters’ best estimates of who fell where. We stand ready be convinced otherwise by readers offering evidence or insight that supports a different view. Send us an email, gives us a call, write a comment or shout us out on Twitter.