The Fed's new openness policy will create confusion, not clarity

Economists think that the Federal Reserve's new policy to be more transparent will only create noise and confusion in the markets

|
Rudy Gutierrez/AP/El Paso Times/File
In this file photo, Federal Reserve Chairman Ben Bernanke listens to a question during a town hall meeting for soldiers and their families in El Paso, TX. The Federal Reserve has unveiled a plan to be more transparent, a policy that many economists think will only create more confusion in the financial markets.

UBS economists Maury Harris and Drew Matus address the new "openness" of the Fed and their desire to become more transparent with interest rate actions.  The concept gets a thumbs down on the grounds that it will probably be yet another noisy, misleading thing to disrupt markets:

More on Fed’s communications policy. In addition to the new estimates the Fed also noted that it would release “[A]n accompanying narrative will describe the key factors underlying those assessments as well as qualitative information regarding participants’ expectations for the Federal Reserve’s balance sheet.” This adjustment to Fed communications is unlikely to be the last. The minutes show that “[a] number of participants suggested further enhancements to the SEP; the Chairman asked the subcommittee to explore such enhancements over coming months.”

We believe Fed officials publishing their expectations for the timing of the first rate increase could increase market volatility as differences between the members’ economic forecasts and actual figures that do not impact the projected policy path may confuse market participants. The Fed acknowledges these risks but views these concerns as “manageable.” We view the step as making the Fed more transparent while not doing much to improve clarity.

Elsewhere, this new transparency is being likened to a form of QE3 in disguise says UniCredit and JPMorgan (via Pedro da Costa at Reuters).

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to The Fed's new openness policy will create confusion, not clarity
Read this article in
https://www.csmonitor.com/Business/The-Reformed-Broker/2012/0104/The-Fed-s-new-openness-policy-will-create-confusion-not-clarity
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe