This page has been archived and commenting is disabled.

Picturing The Slow Rise And Quick Fall Of Fed Credibility

Tyler Durden's picture




 

"There's no alternative in making monetary policy but to communicate as clearly as possible, and that's what we tried to do," is how Bernanke defended the Fed's actions over the last six months. But, as the WSJ's Jon Hilsenrath rather snarkily explains, the Fed's 'communications strategy' was a stumbling effort to let the public know what was going on as their efforts to telegraph strategy left investors confused at key points about where it was heading, and some misread Mr. Bernanke's intentions about the bond-buying program and interest rates.

That disconnect exacerbated a real-world problem: rising rates that by August showed signs of denting a budding housing recovery. Perhaps Fed's Stein sums up the farce best, "what is much more important is doing everything we can to ensure that this difficult transition is implemented in as transparent and predictable a manner as possible. On this front, I think it is safe to say that there may be room for improvement."

Via WSJ,

The Federal Reserve's decision to continue one of the most audacious experiments in monetary history—an $85 billion-a-month bond-buying program designed to boost growth—followed six months of tense negotiations inside the central bank, and a stumbling effort to let the public know what was going on.

...

The saga shows how hard it is for a central bank to communicate about plans that are complicated, evolving and conditional on the economy.

...

The Fed's efforts to telegraph its strategy left investors confused at key points about where it was heading, and some misread Mr. Bernanke's intentions about the bond-buying program and interest rates. That disconnect exacerbated a real-world problem: rising rates that by August showed signs of denting a budding housing recovery.

...

"There's no alternative in making monetary policy but to communicate as clearly as possible, and that's what we tried to do," Mr. Bernanke said at a news conference after the Fed's September meeting.

...

Fed Governor Jeremy Stein in a speech after the September meeting. "What is much more important is doing everything we can to ensure that this difficult transition is implemented in as transparent and predictable a manner as possible. On this front, I think it is safe to say that there may be room for improvement."

...

The Fed has said it would continue buying bonds—a program also known as "quantitative easing," or QE for short—until it saw substantial improvement in the labor market.

By April more officials, including the governors, were getting worried about terms like "QE-ternity" and "QE-infinity" floating around financial markets, which suggested some investors thought the program was boundless, according to people familiar with Fed discussions. The Fed officials thought the job market had made enough progress to warrant discussing an exit.

"We're in this box because we've got an open-ended program, and we didn't figure out how we were going to end it when we started," Richmond Fed President Jeffrey Lacker , an opponent of the program, said in an interview.

Disagreements about how to communicate their plans boiled up at a May 1 policy meeting.

...

"We think they are risking their credibility if they throw more money at a problem and it does not turn the situation around," Christopher Rupkey , chief U.S. economist at Bank of Tokyo-Mitsubishi said in a note to clients at the time.

...

Mr. Stein "would have been comfortable" cutting the bond purchases then, he said in a later speech.

Dallas Fed President Richard Fisher , an opponent of the programs, supported a move. "Doing nothing at this meeting would increase uncertainty about the future conduct of policy," he later recalled saying. Not acting, he said called "the credibility of our communications into question."

Mr. Bernanke didn't want to move simply because markets expected it. "We can't let market expectations dictate our policy actions," he said at a news conference later. "Our policy actions have to be determined by our best assessment of what's needed for the economy."

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 10/08/2013 - 21:38 | 4036634 Chupacabra-322
Chupacabra-322's picture

Hey Obama and Members of Congress

............./´¯/)........... (\¯`\
............/....//........... ...\\....\
.........../....//............ ....\\....\
...../´¯/..../´¯\.........../¯ `\....\¯`\
.././.../..../..../.|_......_| .\....\....\...\.\..
(.(....(....(..../.)..)..(..(. \....)....)....).)
.\................\/.../....\. ..\/................/
..\................. /........\................../
....\..............(.......... ..)................/
......\.............\......... ../............./
From The American People

Tue, 10/08/2013 - 21:50 | 4036682 Trimmed Hedge
Trimmed Hedge's picture

Looking down the barrel of a gun would be more apt...

Tue, 10/08/2013 - 22:32 | 4036786 philipat
philipat's picture

"When the going gets tough, you have to lie" - JC Juncker

Is perhaps a better explanation of how "transparent communication" and "Central Bank" should never be used in the same sentence as they are oxymoronic. All Banksters are congenital liars.

Wed, 10/09/2013 - 00:17 | 4037008 CvlDobd
CvlDobd's picture

"The goin' gets tough from the getgo go man go
Oh brother, not another motherfucker"

 

Ween

Wed, 10/09/2013 - 08:27 | 4037425 Vooter
Vooter's picture

Great song, great band...

Tue, 10/08/2013 - 21:39 | 4036649 Cognitive Dissonance
Cognitive Dissonance's picture

Only one bullet left in the Fed's gun.

<Hmmmm.........what to do, what to do?>

Tue, 10/08/2013 - 23:41 | 4036953 Schmuck Raker
Schmuck Raker's picture

"Buy this Treasury Bond or we will shoot this dog."?????

Wed, 10/09/2013 - 06:29 | 4037268 Nothing but the...
Nothing but the truth.'s picture

 - Yeah but it's a blank.

Wed, 10/09/2013 - 06:45 | 4037284 Australian Economist
Australian Economist's picture

If those guys put their heads together, they could kill two birds with one stone.

Tue, 10/08/2013 - 21:46 | 4036666 Trimmed Hedge
Trimmed Hedge's picture

OMG!

Kris & Bruce Jenner have split!!

Tue, 10/08/2013 - 21:49 | 4036673 Cognitive Dissonance
Cognitive Dissonance's picture

Bruce loves his face lifts more than Kris.

<News at 11.>

Tue, 10/08/2013 - 21:48 | 4036674 wisehiney
wisehiney's picture

Prechter calls this "The Point of Recognition".

Tue, 10/08/2013 - 21:54 | 4036688 booboo
booboo's picture

I think you mean "The Point of Rectal Ignition"

Tue, 10/08/2013 - 21:53 | 4036678 FieldingMellish
FieldingMellish's picture

Gold is the measure of fear and faith in fiat. Crush gold and you can create the appearance of full faith and no fear. Gold's crushing since April is no coincidence.

Tue, 10/08/2013 - 21:56 | 4036692 booboo
booboo's picture

then it's not much of a measure.

Tue, 10/08/2013 - 22:00 | 4036699 Yenbot
Yenbot's picture

 "We can't let market expectations dictate our policy actions," he said at a news conference later. "Our policy actions have to be determined by our best assessment of what's needed for the economy."

Where have I heard this before?

Oh, yeah, Louis XVI of France...

Tue, 10/08/2013 - 22:09 | 4036723 tpgaynor
tpgaynor's picture

bring back the guillotine's

http://en.wikipedia.org/wiki/Guillotine

Tue, 10/08/2013 - 22:08 | 4036711 NOZZLE
NOZZLE's picture

These people get paid how much for this incoherent nonsense?  Didn't figure out how they were going to end it when they started it, What the hell is that. 

Tue, 10/08/2013 - 22:14 | 4036730 Portuguese Revo...
Portuguese Revolutionary's picture

They had credibility before the '08 crisis?? Who would have known??

The Mafioso group that bought the Dollar on Christmas has ever had any credibility as system managers or system plunderers??

Sometimes articles here at ZH have ridiculous titles...

Tue, 10/08/2013 - 23:40 | 4036948 Schmuck Raker
Schmuck Raker's picture

“If I have made myself clear then you have misunderstood me.”
        -Alan Greenspan

Bernanke is not Greenspan.

Never the less... Fuck You Bernanke.

Wed, 10/09/2013 - 00:27 | 4037039 polo007
polo007's picture

http://politicalticker.blogs.cnn.com/2013/10/08/senior-house-gop-source-short-term-debt-ceiling-may-be-way-out/

Washington (CNN) – The door the White House appears to have opened to a short-term debt ceiling increase may be a temporary way out of the standoff, a senior House Republican told CNN.

The Republicans may be willing to go for a short-term debt ceiling increase as long as the president agrees to use that time to negotiate, the source told CNN Chief Congressional Correspondent Dana Bash.

How long is short term?

This GOP source said maybe four to six weeks.

Still, it’s unclear whether Republicans could even get that short-term bill through the House without even a tiny concession on spending cuts from Democrats.

When President Barack Obama was asked during Tuesday's news conference whether he would be open to a short-term debt ceiling increase, he responded “absolutely.”

“I mean, what I've said is that I will talk about anything. What will happen is, we won't agree on everything. I mean, the truth is, is that the parties are pretty divided on a whole bunch of big issues right now," Obama said. "Everybody understands that."

The House GOP source said that the president’s call to Republican House Speaker John Boehner on Tuesday was a good first step – and they have to keep talking.

CNN’s Chief Political Analyst Gloria Borger reported on Saturday that a senior House Republican said one idea being considered is a six-week extension of the continuing resolution to fund the government, and the debt ceiling, to allow for time for both sides to negotiate.

Wed, 10/09/2013 - 01:48 | 4037083 TaperProof
TaperProof's picture

Great now show the graph of credibility of the fed among people with brains.  The ones that know the fed is full of shit and has been wrong for many many years (decades?)

Wed, 10/09/2013 - 02:24 | 4037134 Assetman
Assetman's picture

The Hilsenrath diatribe misses the source of the credibility gap with the Fed, in my opinion.

This isn't an issue of poor communication.  This is a issue of aggressive policy not having its orignially intended effect.

Despite all their best efforts to flood the economy with credit-- the Fed has consistently missed the mark on their own economic growth estimates.  Since 2010, just about every important measure for growth has missed the mark-- at times to a very significant degree.  

They can't reverse QE because they cannot achieve escape velocity on $80 billion of asset expansion a month and zero interest rates.  It's not working because the tool of choice has been (and alway will be) proven to be an extremely poor transmission mechanism for real economic production.

The Fed is losing credibility because they are finding it close to impossible to put the QE marbles back in the bag... and in fact may find reason to take even more marbles out.  This economy isn't anywhere close to hitting a self-sustaining growth track.  

While the Fed has focused on the unemployment gains as a proxy for their next move-- they also know all too well that the underlying quality of the employment numbers is abysmal.  We could hit the magic 6.5% number and it won't make a hill of beans because real economic growth will be close to zero.  At the point, the Fed will likely admit that the unemployment picture doesn't match unemployment reality-- and that the loss of full time employment is the real issue that needs to be dealt with.

And, of course, it will be 'dealt with' by providing even more QE.

This isn't the first time its happened in the course of history, and it will likely not be the last time either.  What you can expect, though, is that credibility in the central bank will continue to wane-- and at some point, is likely to accelerate when the public figures out that currency debasement has a very dark side.

The right thing to do is for the Fed to throw this back on the lap of Congress-- targeting fiscal policies that fosters real capital formation and real economic growth.  The Fed clearly has enough evidence on its side to conclude they cannot do much more and provide a real economic benefit-- all they can do (and have done) is separate the have's from the have nots.

But alas, the next Fed move will be to INCREASE the pace of asset purchases, not decrease them.

 

Wed, 10/09/2013 - 21:52 | 4040035 Ned Zeppelin
Ned Zeppelin's picture

Read David Stockman's book.

The fed is not interested in increasing Main Street jobs.

Wed, 10/09/2013 - 03:59 | 4037192 no more banksters
no more banksters's picture

"If one take a look at the data, can see that the share of the US government debt held by the "Federal" Reserve reached record levels in 2011, reaching 11.2% of GDP, the highest since 1940 onwards, and possibly the historically higher. In 2012, this rate was also high at 10.6% of GDP. Only once this figure reached such levels, in 1946, i.e. shortly after the end of WWII, when it reached 10.7% of GDP. [Table 7.1, http://www.whitehouse.gov/omb/budget/historicals]

The spiraling debt of the Federal Government to "Federal" Reserve, is due to repeated quantitative easing policies, i.e. primarily "printing" new money, supposedly made to stimulate the economy. Instead, however, the money went solely to bailout biggest banks, some of which participate in the "Federal" Reserve! Which means that, money returned to the banks through a circle, while uploaded US government with more debt, which will be passed on to future generations! Unanswered questions remain also, about the case on the basis of which, the "Federal" Reserve secretly supplied through the "back door" with more than $ 9 trillion, various financial institutions with questionable balance sheets during the financial crisis in the US. Nobody seems to deal with this issue today."

http://failedevolution.blogspot.gr/2013/10/new-deal-vs-obamacare-one-rea...

Wed, 10/09/2013 - 05:26 | 4037242 Disenchanted
Disenchanted's picture

Fed Credibility...

Ain't that one them oxymoran thingies?

Wed, 10/09/2013 - 06:16 | 4037262 AE911Truth
AE911Truth's picture

B. S. Bernanke said: "There's no alternative in making monetary policy but to communicate as clearly as possible, and that's what we tried to do,"

OK Ben, Please communicate clearly about what the Fed did with the world's gold in the 1930's.

From: Karen Hudes
To: "ElaisaKasan@gmail.com"
Sent: Friday, October 4, 2013 9:02 PM
Subject: RE: The World's Gold

Dear Elaisa,

You are right, there is a lot of disinformation about the world's gold.
Where is it: on deposit in 172 banks in 49 countries with about 360 accounts, one of which is the Bank of Hawaii (with 175,000 metric tons). 172,000 metric tons were buried under the World Trade Center and stolen just before the twin towers came down. The rest of the gold is buried in various hiding places.
Who owns it: it is in a trust, with humanity as its main beneficiary
Who controls it: I have suggested that the Bretton Woods institutions deal with the valid signatory authority at their upcoming Annual Meetings on October 9, 2013
Shouldn't the whole world know about this? Yes
Why is this not being spread around the internet by alternative media? It soon will be. Here is a sampler:

http://beforeitsnews.com/new-world-order/2013/09/recovering-buried-gold-...

Keep your eye on the ball: the Latter Day Saints (knee deep in the drug trade), the Chinese (trying to install martial law in the US), attempted revaluation of the Iraqi Dinar to finance the now bankrupt Federal Reserve System. They all see the writing on the wall and are making last ditch efforts in plain view that only serve to further discredit themselves.

Best,
Karen

> To: karenhudes@hotmail.com
> Subject: The World's Gold
> Date: Fri, 4 Oct 2013 10:39:27 +0000
> From: karenhudes@hotmail.com
>
> From: Elaisa Kasan
> Subject: The World's Gold
>
> Message Body:
> I am trying to learn more about what happened to the world's gold in the 1930's. The Keenan Complaint (if valid) gives some clues:
>
> http://www.scribd.com/doc/93058461/LAWSUIT-Complaint-SDNY-11-23-2011-Nei...
>
> Also:
> http://www.scribd.com/Free_Nations/documents?page=1#
>
> These refer to "thousands of trillions" of gold backed Federal Reserve Notes issued in the 1930s. Also 2.4 million tons of gold. Where is it. Who owns it? Who controls it? Shouldn't the whole world know about this? Why is this not being spread around the internet by alternative media?
>
> Thank you for your attention.
>
>
> --
> This mail is sent via contact form on kahudes http://kahudes.net/contact-us/
>

Wed, 10/09/2013 - 06:49 | 4037290 Ned Zeppelin
Ned Zeppelin's picture

Really pathetic appearance by the Wall Street Stooge Kramer this am on Morning Joe.

Debt ceiling issue is a "Main Street" issue "will not affect Jamie Dimon."

What a load of shit.

Wed, 10/09/2013 - 09:11 | 4037551 Mad Muppet
Mad Muppet's picture

I'm convinced the thw whole purpose of Ben al-Burnankes' lack of clarity was to cause confusion. It was one of his last tools to try and manipulate the markets. How pathetic is that?

Do NOT follow this link or you will be banned from the site!