{"id":50309,"date":"2019-08-27T11:59:56","date_gmt":"2019-08-27T15:59:56","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=50309"},"modified":"2019-08-27T11:59:56","modified_gmt":"2019-08-27T15:59:56","slug":"the-feds-tower-of-babel","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2019\/08\/the-feds-tower-of-babel\/","title":{"rendered":"The Fed's Tower Of Babel"},"content":{"rendered":"

There was a profusion of communications and opinions from the Federal Reserve last week. The challenge now is to try to make sense of it all.<\/p>\n

The first thing that caught my attention was the release of a survey conducted by the New York Fed measuring how well the Fed communicates its intentions to market makers. It didn\u2019t do so well.<\/p>\n

The bank found that a majority, or 15 out of 24, of the primary dealer banks that bid on U.S. Treasury debt auctions and make a market in government securities found the Fed\u2019s communications prior to its July 31 decision to lower interest rates to be \u201cineffective\u201d or close to it. \u201cSeveral dealers indicated that they found communication confusing, and several characterized communications from various Fed officials as inconsistent,\u201d the New York Fed said.<\/p>\n

A similar survey of money managers found only slightly better results, with exactly half, or 14 of 28, giving the Fed \u201clow grades for communications effectiveness.\u201d <\/p>\n

Then, at the Kansas City Fed\u2019s annual \u201csymposium\u201d in Jackson Hole, Wyoming, Athanasios Orphanides, a professor at MIT, released a paper including suggestions on how the Fed can improve how it communicates its policy-making process. While the paper commends the Fed for increasing the amount of information it provides to the public over the past three decades \u2013 it surely has \u2013 there\u2019s room for improvement in how it communicates that information. Specifically, Orphanides recommended that Fed members provide more details about their confidence or uncertainty in their various economic projections and how those might change given different scenarios or over time.<\/p>\n

While all of the information the Fed already provides, and the prospect of more, is good in theory, the problem is that the Fed is providing too much information, which is creating more confusion and uncertainty, rather than less, about exactly where it stands collectively, while businesses, investors and consumers crave simple guidance on the direction of future Fed policy so they can make more intelligent decisions.<\/p>\n

It\u2019s like when you go to the pharmacy and try to buy a bottle of cold medicine. The other day I did that and was so confused by the number and variety of choices \u2013 one for a cold, one for the flu, one for a cold and flu, one for mucus, one with a decongestant, one with an antihistamine \u2013 that I walked out of the store frustrated and empty-handed.<\/p>\n

Last week\u2019s Jackson Hole confab produced a cacophony of words, ideas, and views by various Fed monetary officials which no doubt created even more uncertainty about where the Fed stands and what its next move might be. <\/p>\n

Before the symposium, the markets may have been forgiven for thinking that the July rate cut may be the last one for a while. The minutes of the Fed\u2019s July 30-31 meeting, released the day before Jackson Hole, called the rate cut a \u201crecalibration\u201d rather than the beginning of more to come. <\/p>\n

\u201cMost participants viewed a proposed quarter-point policy easing at this meeting as part of a recalibration of the stance of policy, or mid-cycle adjustment, in response to the evolution of the economic outlook over recent months,\u201d the minutes said, which Fed Chair Jerome Powell reiterated at his post-meeting press conference then. <\/p>\n

At Jackson Hole, however, Powell appeared to have a change of heart, expressing greater concerns about international trade. He \u201cdidn\u2019t push back against market expectations of a rate cut at the Fed\u2019s Sept. 17-18 meeting, and he left an open door to providing more stimulus after that,\u201d the Wall Street Journal reported.<\/p>\n

Fed members were also divided at Jackson Hole about where they see the next move in monetary policy, just as they apparently were at the July FOMC meeting.<\/p>\n

On the more hawkish side, Kansas City Fed President Esther George, who voted against the July rate cut, maintained that stance last week.<\/p>\n

\u201cMy sense was we\u2019ve added accommodation, and [the rate cut] wasn\u2019t required in my view,\u201d she said on CNBC. \u201cWith this very low unemployment rate, with wages rising, with the inflation rate staying close to the Fed\u2019s target, I think we\u2019re in a good place relative to the mandates that we are asked to achieve.\u201d<\/p>\n

Philadelphia Fed President Patrick Harker, who is not currently a voting member of the FOMC, agreed with that assessment. \u201cI think we should stay here for a while and see how things play out,\u201d he said.<\/p>\n

A few days prior to Jackson Hole, Boston Fed President Eric Rosengren, who also voted against the July cut, told Bloomberg Television that cutting rates \u201cis a bigger risk to encourage people to take on too much more risk at this time. Global conditions are weak. So I\u2019m not saying there aren\u2019t circumstances in which I would be willing to ease. I just want to see evidence that we are actually going into something that\u2019s more of a slowdown.\u201d <\/p>\n

On the dovish side, however, Dallas Fed President Robert Kaplan, also a non-voter this year, acknowledged that \u201ccutting rates hurts savers, it pushes people to take more risk, and I\u2019m very cognizant of that,\u201d he said. But \u201cI\u2019m also cognizant if we wait till we see weakness in the consumer to take action, we\u2019ve probably waited too long.\u201d<\/p>\n

So, what\u2019s the Fed\u2019s next move? Your guess is as good as anyone's.<\/p>\n

Visit back to read my next article! <\/p>\n

George Yacik<\/a>
\nINO.com Contributor - Fed & Interest Rates<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

There was a profusion of communications and opinions from the Federal Reserve last week. The challenge now is to try to make sense of it all. The first thing that caught my attention was the release of a survey conducted by the New York Fed measuring how well the Fed communicates its intentions to market […]<\/p>\n","protected":false},"author":16,"featured_media":50311,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[8853,9264,511,7310,6938,230,11954,5050],"class_list":["post-50309","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-fed-balance-sheet","tag-fed-chair-jerome-powell","tag-federal-reserve","tag-federal-reserve-monetary-policy","tag-george-yacik","tag-interest-rates","tag-long-term-interest-rates","tag-u-s-economy"],"yoast_head":"\nThe Fed's Tower Of Babel - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"There was a profusion of communications and opinions from the Federal Reserve last week. 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