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
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.
Rudy Gutierrez/AP/El Paso Times/File
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.聽 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鈥檚 communications policy. In addition to the new estimates the Fed also noted that it would release 鈥淸A]n accompanying narrative will describe the key factors underlying those assessments as well as qualitative information regarding participants鈥� expectations for the Federal Reserve鈥檚 balance sheet.鈥� This adjustment to Fed communications is unlikely to be the last. The minutes show that 鈥淸a] number of participants suggested further enhancements to the SEP; the Chairman asked the subcommittee to explore such enhancements over coming months.鈥�
We believe Fed officials publishing their expectations for the timing of the first rate increase could increase market volatility as differences between the members鈥� 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 鈥渕anageable.鈥� 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 says UniCredit and JPMorgan (via Pedro da Costa at Reuters).