Best kind of “forward guidance”: Keep mum

That´s what Stanley Fischer, until recently governor of the Bank of Israel, suggested:

The lesson, according to Stanley Fischer, the former head of the Bank of Israel, is the Fed would do better not to telegraph future policy decisions.

Fed officials have placed great store on these communications. By assuring the public that it will keep short-term interest rates low for several years, for instance, the Fed is sending signals aimed at holding down long-term rates to boost growth.

But Mr. Fischer said making such statements – known as forward guidance – can cause market confusion.

“You can’t expect the Fed to spell out what it’s going to do,” Mr. Fischer said. “Why? Because it doesn’t know.”

He added: “We don’t know what we’ll be doing a year from now. It’s a mistake to try and get too precise.”

And the “tapering talk” goes on following last week´s FOMC meeting. From St Louis Fed president Bullard:

St. Louis Fed President James Bullard said Friday that “a small taper is possible in October” and the decision not to move at the latest meeting was “borderline.”

“This was a close decision here in September,” he said on Bloomberg TV. “It’s possible you get some data that can change the complexion for the outlook and make the committee comfortable with a small taper in October.”

But Bill Dudley, NY Fed president, doesn´t think so:

The US economy still needs “very accommodative” policy before the Federal Reserve can tamp its brakes, William Dudley, the president of the Federal Reserve Bank of New York, said in the Big Apple this morning.

Then there´s “serial dissenter” Esther George of the KC Fed and “born again Christian” Kocherlakota of the Minneapolis Fed, who puts it ‘epically’:

To achieve its goals, the FOMC has taken some historically unprecedented monetary policy actions in recent years. But the U.S. economy is recovering from the largest adverse shock in 80 years—and a historically unprecedented shock should lead to a historically unprecedented monetary policy response. Indeed, the FOMC’s own forecasts suggest that it should be providing more stimulus to the economy, not less.

What would Greenspan have said? Most likely what he did say:

The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal.

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