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December 12, 2007
Grading the Fed "F" On Communications
As Martin Barnes says in the latest from BCA, the Fed gets an "F" for clarity in its recent communications. Despite have declared that it will be more straightforward and less opaque, here is what we have seen in recent weeks:An unnecessary and ill-advised shift to a neutral position after the October rate cut was quickly abandoned as it became apparent that the economy and markets needed more monetary relief. Then we had this week’s fiasco: hanging the markets out to dry on Tuesday with a timid move on the discount rate, followed by today’s announcement of plans to ease credit market strains. It is a mystery why yesterday’s policy statement did not warn that a new plan to boost market liquidity was on the way.
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The first sentence does not deal with communication; rather it criticizes analysis and action.
Increased transparency lets through noise as well as signal. Maybe the auction plan was not approved until after the discount rate vote... could that decision have even been contingent upon the response to the discount rate vote?