She Meant What She Said

The Fed set out on its "Openness" Journey in 1999 with the ascension of Roger Ferguson to Vice-Chair. Greenspan's persona of global central banker to the stars and "man who saved the world" over shadowed the great work and good intentions of Ferguson. After decades in seclusion (and popular books like Secrets of the Temple), Ferguson was charged with opening and clarifying Fed communication and transparency. After Sept 11, he compiled what is essentially the Central Bankers Handbook - The International Journal on Central Banking. Although several "appendix" have been added in the post-crisis era, many Bernanke detractors would have been better served if they read instruction guide earlier.

My objections to the Ferguson Agenda have been well documented in this space. I believe openness reduces policy efficacy. Ironically, a St Louis Fed white paper of the mid-90s leaned against openness also. The paper concluded that policy  levied in "surprise" fashion and of greater degree than market pricing was the most effective at achieving desired economic outcomes. The summary was "Do more and do it when they don't expect it."

Back in my day, when dinosaurs roamed and trading was conducted by hand signals in pits, certain wise men were given the task of tea leaf reading Fed activity. They were called Fed Watchers. Oddly, as the Fed has increasingly educated any and all who are willing to listen as to there views and operational actions, a cottage industry of re-explaining has boomed. Yesterday's statement and presser - THEY EVEN DO PRESS CONFERENCES ! - lit up the industry once again. The gist of what I've read goes something like this - with decoder ring :    1)     "The statement was "clumsy"- meaning? The statement did not read as I would have written it.

2) "Patient is 2 meetings but Considerable Time is 6 months" meaning? I'm making things up that jive with the readily available prices in STIR strips.

3) It was "Hawkish/Dovish" meaning? Insert adjective that aligns with my/firms position in equity/FI/commodities. OR, allows me to continue ranting about the Fed.

Here's what I think - She meant what she said. Stop worrying about the Fed. Keep watching the term structure between 1 and 5 years, it'll tell you everything its telling the Fed. The long end was clearly trying to "Go it alone" and that rarely works out.

Happy Holidays from Joe, Hooper and me.

Leave a Reply

Your email address will not be published. Required fields are marked *