In the wake of all the Kremlinology spurred by yesterday’s Federal Reserve
meeting, I’m wondering if it might not be time to revisit the manner in which
the Fed releases its statements.
I do agree with the way in which the Fed now formally announces what its Fed
funds target rate is: there’s really no reason not to. But the rest of the statement
is so overanalyzed that it might be time to move to a different system. I’m
talking, here, about the way in which market observers obsess over the tiniest
of differences between this statement and the last: see, for example, Mark
Thoma, William
Polley, Barry
Ritholtz, and countless others.
The problem is that the Fed’s statement doesn’t change very much from one meeting
to the next, which is a recipe for the narcissism of small differences. I wouldn’t
be surprised to find that a significant chunk of any given FOMC meeting is given
over not to monetary-policy matters but rather to the exact wording of the subsequent
communiqué. And that, if true, would be a waste of valuable FOMC time.
For instance, the markets spent much of yesterday wondering exactly what the
difference is between these two sentences:
Recent readings on core inflation have been somewhat elevated.
Core inflation remains somewhat elevated.
This is a waste not only of the FOMC’s time, but also of the time of hundreds
of analysts who suddenly find themselves in the position of rune-readers.
The full minutes are released, with a delay, and I wouldn’t suggest that the
Fed try to speed up their release necessarily. But perhaps a different Fed governor
could write the statement each meeting, and sign it. So each one would be in
a different voice, and the markets would no longer have to bother themselves
with trying to make apples-to-apples comparisons.
In any case, I think the best solution would be something which would concentrate
the markets on the substance of what is being said, rather than on
the silly differences between what is said this time and what was said last
time. Surely that must be possible somehow.