Is ‘opacity’ best?

One must miss Greenspan when a senior Fed researcher has to try and ‘make transparency transparent’:

As a regular, satisfied customer of The Wall Street Journal‘s “Heard on the Street” feature, I was a bit distressed to read this, from an item titled “Bonds Beware Central Bank Regime Change“:

In the U.S., the Federal Reserve has announced that future monetary policy tightening will depend on a hard target for falling unemployment and a softer target for rising inflation expectations. That looks like a tilt toward growth as the priority over inflation.

When The Financial Times and The Wall Street Journal in quick sequence publish articles that seem to misinterpret Fed communications, I have to surmise that the message isn’t getting through and bears repeating and further explaining.

Earlier this week, in response to the alluded-to FT article, I addressed the charge of a “tilt toward growth as the priority over inflation,” noting that Fed Chairman Ben Bernanke clearly indicated in last week’s press conference that there has been no “change in our relative balance, weights towards inflation and unemployment….”

Greenspan, in his way, was ‘transparent’:

I guess I should warn you, if I turn out to be particularly clear, you´ve probably misunderstood what I´ve said.

But anyway, I´m surprised that Bernanke didn´t think pundits would arrive at exactly this sort of conclusion when he started putting numbers on unemployment and inflation objectives.

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2 thoughts on “Is ‘opacity’ best?

  1. When I read Dave Altig’s post yesterday I thought, another example of further clarification needed for WSJ articles! But then I didn’t really consider an important source of the problem…

  2. I believe that the Fed should be transparent, accountable, and provide clarity as to intentions—I believe this as I believe it of all major public agencies in a democracy. Opaque, secret government is always a bad idea.

    That said, given the public’s lack of interest in monetary policy, and the distrust of government even if it does listen, I wonder if “forward guidance” has all the import we Market Monetarists think.

    Nothing beats actual implemented policy, such as a sustained QE program, clearly linked to specified targets.

    The futures market is another good idea.

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