The Fed didn’t mean to send a positive surprise to equity markets with the Dec 17 FOMC statement and it’s a sign of a policy mistake, writes former St Louis Fed President Bill Poole.
“An inadvertent surprise is no more an advertisement for orderly policy than is a deliberate surprise,” he writes in Forbes, referring to the Fed’s confused language about removing or not removing ‘considerable time.’
Even worse, he said the Fed is is wrong to be patient on hiking rates.
“The Fed is making a huge mistake by continuing to treat the economy as if it is in a fragile state,” he writes.
But he spends most of his energy lamenting the vague words from the Fed on hiking rates and says markets operate best with as much certainty as possible.
He argues for Fed statements with less meaningless verbiage that’s prone to misinterpretation.
Communication by indirection is a recipe for misunderstanding. Fear of creating negative surprises will lead the Committee into ever-greater cycles of ambiguity. At some point, when it is important for the FOMC to be clear about a change in policy direction, clarity will be impossible. A new policy statement will not easily cut through the baggage of inherited ambiguity. And, a timid Fed will not lead the markets but be whipsawed by them.
Now that’s a well-written paragraph.
Bill Poole
h/t @axelmerk
