Lost in TranslationJuly 27, 2010 Posted by: Joe Morgan, CFA
The views expressed in this column are those of the author and not SVB Financial Group.
There must be some misunderstanding
There must be some kind of mistake
Followers of the Fed have always been challenged with interpreting its written or spoken word. From the early Greenspan days, Fed-watchers spent countless hours scouring speeches, testimonies and written releases, parsing every single word in search for clues of coming Fed actions. (Imagine a world where the Fed doesn't even announce their target interest rate and you can see the need for such specificity.)
For the Fed's part, game theory tells us that signifying an action can have more effect than the action itself. Thus, the need to at times be opaque and at other times, "talk the market" in one direction or another.
This week, we've gone to an entirely new level.
Even prior to Bernanke's appointment as the grand pooh-bah of monetary action, he has been seen as a different sort. Most Fed-watchers believe he wanted more clarity in Fed communications as well as less authority, in the sense that he wanted FOMC votes to be just that, rather than the rubber-stamping process it surely was under Greenspan.
Today there is much evidence of this attitude, including the treatment of Kansas City Fed President Thomas Hoenig's dissention as outlined in our most recent quarterly commentary.
Last week Bernanke described his outlook for the economy as "unusually uncertain" This poetic bit of language precisely illustrates the fact that our economy cannot be defined today.
Consumers are "unusually uncertain" about two things: the stability of their jobs (if they have one) and the size of their wealth.
Homeowners are "unusually uncertain" about the value of their homes.
Employers are "unusually uncertain" about a lot of things, including whether their customers will show up tomorrow.
The government is "unusually uncertain" regarding appropriate economic policies.
Cross-border transactors are "unusually uncertain" about currency movements.
Price-watchers are...Read More