The Fed may be talking too much
Maybe the Federal Reserve needs to embrace a simple idea: Less is more.
The U.S. central bank used to be known as a cryptic institution, rarely talking to the public, and kept investors often guessing about major policy moves. Today, Fed officials communicate almost constantly through public speeches, televised press conferences and major interviews.
That’s good, right? Not always. Sometimes those comments deliver inconsistent and conflicting messages, reflecting the diverging viewpoints of the speakers and fluctuating economic reports.
Over the past few years investors have grumbled that those mixed messages can create confusion for businesses and financial markets about where interest rates are going. Now even a senior economist at the Federal Reserve agrees with that complaint.
These speeches “can lead to volatile behavior, with reactions sometimes occurring in response to changes in wondering more than to actual content,” Antonella Tutino, senior research economist at the Dallas Fed, wrote in a note published this week.
She argues that’s especially true given the public’s “limited attention span” and the risk of “overwhelming” people with too much information.
“A more effective communication strategy for the central bank could be to speak less often and make each speech count by delivering a more focused, cohesive and concise message,” Tutino wrote.
The timing of the Dallas Fed paper was perfect. It was released during a week that featured a flurry of “Fed speak” that created turbulence on Wall Street.
U.S. stocks took a hit on Tuesday when three regional Fed presidents spoke at three separate events and suggested the central bank could raise rates in June. That surprised — and upset — investors because previously the Fed expressed concern about the global economy that led many to assume no rate hike was imminent.
A day later the Fed released minutes of its April meeting, which also pointed to a June rate increase. But that wasn’t all. On Thursday two top Fed officials, New York Fed President William Dudley and Stanley Fischer, opined on the economy and Fed moves as well.