Fed's word is its bond, now lost in translation
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It probably seemed like a good idea to Federal Reserve officials at the time.
But their decision to stick Fed Chairman Ben Bernanke out on live television two weeks ago to explain how the Fed aims to scale back and eventually end its massive economic stimulus program, without having the message in a well-parsed policy statement he could hide behind, backfired badly.
Trying to publicly explain a nuanced plan that has some key caveats may have been bold but the risks of the message getting garbled in the middle of the Wall Street trading day was high - and that is exactly what happened. Financial markets anticipated the Fed would start hiking interest rates late next year, earlier than the Fed's own expectations, and central bank officials spent much of last week trying to undo the damage.
It capped a series of communication missteps that have exposed the limit of the Fed's ability to manage expectations about interest rates and when it will wind down its bond buying program that provides the stimulus.
"We're trying to communicate, in a plain-speaking and very transparent style, and people misinterpret that as us trying to send hints," New York Fed President William Dudley told reporters when asked how communications were fumbled.
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