By David Nelson, CFA
In November of 2013 former Fed Chair Ben Bernanke made a speech describing his efforts over the last eight years to “make the Federal Reserve more transparent — and, in particular, to make monetary policy as transparent and open as reasonably possible.”
The transparency he describes has morphed into a stream of consciousness narrative as a cacophony of Fed Speak hits us daily with one Fed Governor after the next contradicting each other. FOMC releases and press conferences are often followed by a parade of Federal Reserve Presidents stepping up to a microphone issuing dissenting or confusing opinions.
Anyone who has worked in public relations or foreign policy understands the importance of a unified message. The mixed messages from Federal Reserve personel have contributed to market volatility and create an atmosphere of indecision.
What happened to the Fed’s own policy on public Communications? Their paper FOMC Policy on External Communications of Federal Reserve System Staff (Jan 29, 2013) stated … members of the staff should refrain from publicly expressing their own personal opinions or predictions regarding prospective monetary policy decisions.
President Obama has appointed an Ebola Czar to help coordinate efforts to fight the disease. I’m sure among his duties is to make sure a clear unified message is presented to the public. Maybe it’s time for a Fed Communications Czar to present a clear unified message to investors.
Public Statements by Fed Governors – October 2014:
President Federal Reserve Bank of Minneapolis – Dr. Kocherlakota
Oct 7 CNBC – The Federal Reserve should keep interest rates near zero through at least the end of next year, a top U.S. central banker said on Tuesday, saying that inflation is simply too low to justify tighter monetary policy.
President Federal Reserve Bank of Kansas City – Esther George
Oct 10 Reuters – The U.S. economy is performing well and the Federal Reserve needs to move soon to raise interest rates, a top Fed official said on Friday.
President Federal Reserve Bank of Chicago – Charles L. Evans
Oct 13 Dow Jones – Federal Reserve Bank of Chicago President Charles Evans said Monday the “biggest risk” to the economy right now is that the central bank would raise interest rates sooner than it should.
President Federal Reserve Bank of Dallas – Richard Fisher
Oct 15 to David Asman Fox Business – “From my perspective, it’s much too early to even think about another quantitative easing,” Fisher said. “As we’ve been saying for a long time, we’ve already fed the market too much Ritalin”.
President Federal Reserve Bank of St. Louis – Dr. Bullard
Oct 16 Bloomberg – The Federal Reserve should consider delaying the end of its bond-purchase program to halt a decline in inflation expectations, said St. Louis Federal Reserve Bank President James Bullard.
All right you get the picture. I left out current Fed Chair Janet Yellen because her latest comments instead focused on potential new mandates for the Fed. She discussed the growing inequality in the United States. Citing data compiled by the Fed, she outlined the accelerating divide in incomes and wealth between the top 5 percent of households and everyone else.
If the Fed is now going to add to its growing list of mandates she should consider the following:
While the Fed can claim victory over critics who believed Fed policies would create an inflationary spiral, it’s important to point out that asset inflation is everywhere and a byproduct of these programs. Stocks, bonds and real estate have all benefitted from Fed policies. Who do you think owns the bulk of these assets? Yes the 5%.
It’s time for the Fed to put a unified message in front of investors. It will of course evolve and change when necessary but it doesn’t mean they should turn to the public for answers. The current communications program or lack thereof gives the appearance of a political consultant testing sound bites for a campaign. If the market goes up after the comments it must be good policy. Investor confidence is fragile and easily swayed.
The strength of the Federal Reserve comes from their independence. The second stock investors sense they determine Fed policy, the tantrums will never stop.
