For years, the Federal Reserve was a lockbox when it came to communications; longtime Chair Alan Greenspan’s strategy was FedSpeak, pioneered to be purposefully obfuscating and ambiguous, driven by a vision that the less markets planned for how the Fed would conduct policy, the freer and fairer they would be. The goal of course was to preserve powder: ensuring that policy changes would be amplified to the fullest effect once implemented, and independence was sacrosanct.
As the Bernanke Fed managed its way through a widely televised global financial contagion, the Fed and other central banks became increasingly chatty – the era of the seen-and-not-heard central bank, at a moment when many were enraged the FOMC had missed the signs of an impending crisis, was over.
Managing central bank communications has since been a delicate dance, with occasional outsize comments. Take the splash which caused a taper tantrum (and indirectly may have cost Ukraine its EU admission); or Mario Draghi’s near-magical “whatever it takes,” which bolstered Europe’s markets by jawboning alone.
We find ourselves in a pivotal moment for the Fed’s communication, as its independence and soundness are hanging in the balance. In the last two months, President Trump has fired the head of the BLS, an organization that provides data crucial for making economic predictions; indicated a preference for firing current Fed Chair Jay Powell for holding the line on policy independence; and, in the latest push, firing Fed governor Lisa Cook over allegations of mortgage fraud. Cook is now suing, alleging an overstep of Trump’s authority, with the lawsuit naming Powell and the Fed Board as defendants; a hearing has been set for tomorrow.
We’ll be watching closely, as it’s entirely possible the full faith and credit of the United States of America is on the line.
–The Editors
