“We will try as hard as we can not to be a source of instability here,” Janet Yellen said in response to questions about the Fed’s communications strategy in her first post-meeting question-and-answer session since taking the Fed’s Chair last month.
And so it began. New captain; same sorry, stormy story.
One of the biggest complaints about Yellen’s predecessor, Ben Bernanke, was his lack of a coherent communications strategy. He constantly confused the markets.
Following in Bernanke’s footsteps, Yellen, who has been the Fed’s best forecaster in recent years, sure confused markets on Wednesday. She confounded even the most open-minded observers by spending as much time on the prospects of deflation/stagflation as she did on inflation, though they are polar opposites.
As if that weren’t enough, there was another mixed message delivered about whether the Fed is contemplating a loosening or a tightening of policy.
Believe it or not, Yellen actually spoke quite clearly — and out of both sides of her mouth. The markets plummeted, and every scintilla of hope that she’d be a different type of communicator went right out the window, along with a huge swatch of her credibility.
The markets don’t always have to like the Fed’s decisions or subcribe to what the Fed’s goals may be — they frequently won’t — but the Fed, as the world’s central bank, does have an obligation to keep its credibility high by giving the markets and investors clarity and consistency of message.
Expecting investors to buy stocks and bonds (i.e., to fund our economy) against a backdrop of opaque monetary policy is unfair.
Double talk may be par for the course for politicians, but it ought to be banned from a central banker’s vocabulary, because it drives liquidity out of the markets.
Chair Yellen must surely know that!
Mustn’t she?