I regularly lament the Fed’s penchant for over-communication. Every week, market participants are compelled to process a cacophony of soundbites from a long list of policymakers ostensibly in the interest of transparency and keeping the public informed.
Of course, the general public isn’t listening and anyway doesn’t care, which means the Fed’s actually speaking to investors or, more to the point, to traders. In short: The Fed’s giving gamblers an excuse to gamble — a rationale for tweaking (“refining”) wagers on the trajectory of Fed funds.
During some weeks, the speaking schedule borders on farce, where that means every session features multiple Fed speakers. In my opinion, the Committee reached the point of diminishing returns on these cameos a very long time ago.
But not if you ask Loretta Mester. The old adage tells us less is more, but if you’re Mester, only more’s more. And the Fed needs to use more words when communicating with the public.
That was Mester’s message on Tuesday, when she participated in a BoJ event in Tokyo. US policymakers, she said, should “take control of the narrative” where that might mean, among other things, making the FOMC statements longer. Deliberately. So, words for the sake of them.
Specifically, Mester thinks the Fed should talk more about relevant risk factors in an effort to make clear that policy’s not on a preset course and that anything can happen. Elaborating on the risks, she mused, “would raise the [Fed’s] credibility” to the extent policy shifts “would be seen less as a breach of promise.”
She had other ideas, including the implementation of scenario analyses — because everyone loves fan charts — and an enhanced dot plot that’d take the form of an anonymized matrix wherein each officials’ dot would be connected to their SEP forecasts for growth, unemployment and PCE prices. Austan Goolsbee said something similar a few weeks ago.
As Fed officials go, I generally like Mester, but it takes a special kind of hubris to suggest the best fix for a credibility problem attributable in large part to miscommunication is more talking. In addition to “less is more,” the Fed might want to consider another old adage: If you find yourself in a hole, stop digging.
On Tuesday, Neel Kashkari showed up on CNBC bright and early. It’ll take “many more months of positive inflation data to give me confidence that it’s appropriate to dial back” rates, he said.
As for whether the Fed might go back to rate hikes, Kashkari told the network’s “Squawk Box” program — “the ultimate” market talk show, as the network describes it these days — that the Fed “should[n’t] rule anything out at this point.”
Phew, and I was worried that they had no idea what would happen or how they would respond to it!
The most charitable interpretation I can come up w/ for Mester is that she’s trying to warn traders they’re misjudging the Fed’s intention and taking on too much risk. If that’s her intention, she should say it. Surely she doesn’t believe more Fed speak will enhance clarity about the Fed’s intentions.
From a less charitable perspective, Fed speak is more and more amorphous b/c they are fully immersed in a game of make believe, giving traders permission to believe anything they want. YOLO, FOMO, 0DTE, etc. Perhaps at the top of the traders’ belief system is the view that in the absence of an extreme event, Powell and Co lack the backbone to do anything that will adversely impact markets b/n now and Nov.
“Since I’ve become a central banker, I’ve learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.” Alan Greenspan
Perfect….haha
Nice!
The gamblers want and demand weekly dot plots!
Talk is cheap. If the Fed wants traders to take less risk, it should inflict the pain of excess risk upon them.
A Fed that is less predictable, less telegraphed, more dangerous, and prone to immolate overly risky trades is a Fed that traders will fear. More fear -> less risk taking.
How often are you truly surprised and significantly hurt by an action of the Fed? Often enough to instill fear? I’d suggest likely not.
We could all save a lot of time and money if the members were all just outfitted with body cameras and mics. This Fed non-watcher is already amazed at the sheer amount of travel and anodyne speaking engagements already foisted upon the markets and populace. I’d prefer two giant steps back toward the black box.
Why does the Fed think it is in control anyway? A.I. is in control . We all should know that we don’t know anything. The Fed is chatbot and it never can be outside the box, as it is the box.
Money means everything, but the Fed”s ability to control – or even understand – its future direction is nil.