In Defense of Opacity

Lost in the anticipation of the Fed's post meeting press conference is a discussion on transparency and efficacy. Edgy politics aside, policy loses some of its gravitas when paraded around in public. Prior to the Greenspan tightening disaster of pre-broadcasting 25bp hikes every 6 weeks at 2:15 et, there was growing concern inside the Fed that what was needed was less openness. Implicit in the PR campaign is a basic distrust of markets and their movements.

The move to immediate public discussion of meetings is more than spin. The Fed is acting to counter a host of over reaction and criticism on QE that they could not address publicly in the politically charged environment. The Fed is comfortable with a 200 billion equal to 25 basis point rule of thumb. Thus, QE is just a procedure to adjust finance rates into negative territory once on the nominal floor. One of the basic side effects of this process (in an IOER regime) is a transfer payment to the financial system for recapitalization. The dollar is down 8% since last August. The S&P is up 28%, the Russell +41%, gold +22% and silver- hootchie mama_ +143%. Corporate earnings are robust despite multiple international headwinds. Exactly what metric are we to judge the "failure" of Fed policy and QE on?

I believe a policy of openness on the way out is a mistake. The Fed needs to be "open" about being flexible and quick to adjust to the changing inputs and that means opacity. We were vocal about trying other tools before "monetizing the debt" was embraced. Once undertaken, the ranting seemed a waste of time. The Chairman should highlight the complete lack of credibility on the budget as the reason to halt the money printing. Keep this in mind as the "Presser" approaches: If they can get you asking the wrong questions, they don't have to worry about the answers.

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