Fed Got in Trouble With Transparency, Ferguson Says

Roger W. Ferguson, a former U.S. Federal Reserve vice chairman, said the Fed’s push for transparency amid quantitative easing tripped up the central bank this year.

“They got themselves in trouble when they tried to be very transparent, give us our forward guidance, promise things, and then they don’t deliver,” Ferguson, head of insurer TIAA-CREF, said today in New York at a conference held by Limra, an industry group.

Over the U.S. summer, the Fed created the expectation that it would begin to taper bond buying, Ferguson said. “They got to September, and they didn’t do that,” he said.

The Fed’s surprise decision to prolong stimulus sparked a rally in financial markets. The Standard & Poor’s 500 Index climbed 1.2 percent on Sept. 18, the day of the FOMC statement, while the yield on the 10-year Treasury note dropped 0.16 percentage point to 2.69 percent. Oil rose more than 2.5 percent.

Federal Reserve Chairman Ben S. Bernanke said in June that the central bank was planning to reduce its pace of asset purchases “later this year” and end them by mid-2014. Economists came to focus on the Fed’s September 17-18 meeting as the starting point for shrinking its $85 billion a month bond purchase program.

On the eve of that meeting, the median estimate of economists in a Bloomberg survey predicted the program would be cut to $80 billion. The Fed instead opted to press on, with Bernanke saying in a press conference after the meeting that “conditions in the job market today are still far from what all of us would like to see.”

Janet Yellen

Ferguson, 61, has been chief executive officer of TIAA-CREF since 2008, after leaving a post at reinsurer Swiss Re Ltd. He was Fed vice chairman under Alan Greenspan from 1999 to 2006. He was asked today about his advice for Janet Yellen, U.S. President Barack Obama’s choice to replace Bernanke as Fed chairman.

The Fed should recognize that it has multiple tools and “take some time to try to sort of optimize only one of them,” Ferguson said. “Recognize that they’re brand-new tools and figure out how to use just one of them really well, as opposed to try to toggle back and forth across them.”

Obama nominated Yellen, 67, on Oct. 9. Yellen, now the Fed’s vice chairman, would become the first woman to lead the central bank.

At the Fed, Ferguson worked with Greenspan to help explain interest-rate decisions. He publicly opposed numerical inflation targets at the time, while Bernanke’s Fed has set a price increase target. More recently, Ferguson has discussed the risks of the Fed’s policies that keep interest rates low.

Ferguson left the Fed in April 2006, shortly after Bernanke took over. He was appointed in 1997 by President Bill Clinton.

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