Word to Fed: Less Talk, More Action
Let's cut to the chase. At the July 30-31 meeting of the Federal Reserve's Open Market Committee, "almost all Committee members agreed that a change in the purchase program was not yet appropriate," according to the minutes released at 2 p.m. today.
That was less than a month ago. What's changed since then?
At the same time that policy makers determined that it was too soon to adjust the pace of asset purchases, "almost all participants confirmed that they were broadly comfortable" with the path outlined by Chairman Ben Bernanke at his June press conference. That path entailed starting the process "later this year" and concluding the program by the middle of 2014.
To summarize: As of July 31, it was too early to reduce the current $85-billion-a-month pace of asset purchases. Almost everyone was on board for a diminution this year. So, please mark Sept. 17, Oct. 30 and Dec. 18 on your calendars -- with a big question mark. You want a definite date? The Fed will have to get back to you on that.
Fed officials were finally comfortable that financial markets had gotten the message that reducing asset purchases and raising the federal funds rate were two different animals. I hate to disappoint them, but markets understood that all along. They're just one step ahead of the Fed.
At the July meeting, policy makers discussed the desirability of including "additional information regarding the Committee's contingent outlook for asset purchases." Some said it was "potentially useful." Others saw possible difficulties, such as "the challenge of conveying the desired information succinctly and with adequate nuance, and the associated risk of again raising uncertainty about the Committee's policy intentions."
More and more words are being devoted to talk. At the June meeting, members discussed the idea of including numerical targets for specific economic indicators as part of forward guidance on asset purchases. Please, no! Pretty soon, we'll need a chart or scatter diagram to keep all of this straight.
Central bankers have fallen in love with their own voices. Communication has taken on a life of its own. It's a policy tool. It influences expectations and behavior. It helps the monetary authority achieve its goals.
It's also too much talk. New Bank of England Governor Mark Carney's debut with forward guidance, an import from the Bank of Canada, was pretty much a flop earlier this month. The U.K. stock market fell, gilts fell and sterling rose. That prompted the Council on Foreign Relations's Benn Steil to label it "forward garble." The Fed should listen up and talk less.
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)