Bin Appelbaum makes a fair point, via Federal Reserve governor Jeremy Stein, that clarity and predictability are important communication skills that the Fed could sharpen these days. It’s a view that’s derived from the confusion markets experienced when the FOMC (the committee that decides on monetary policy) surprised everyone—(though not me!)—by holding off on when they start to taper their asset buying program.
But, as De Niro said so memorably to Pacino (after a hyper-tense, awesome pause), “there’s a flipside to that coin.”
What if, on rare occasions, surprise is useful communications tool? To me, this was one of those moments. The Fed was, as I stressed in my writing, incessantly clear that they would be data driven, but the markets didn’t really believe that unsatisfactory data (or data expectations) would lead them off of a Sept. taper.
So, they had a choice. That could allow their policy move to be determined by a market that wasn’t listening, that was operating with more policy certainty than the Fed itself. Or they could implement the policy they deemed most appropriate to the needs of the economy, and let the market catch up. In that sense, the surprise move sent a strong signal that the Fed was serious about both being data driven and targeting the real economy.
That’s communication too, and, in my book, perfectly legit and sound.