Breaking News

Want Surprises From the Fed? Don’t Hold Your Breath

EconomyNov 09, 2018 02:59
Saved. See Saved Items.
This article has already been saved in your Saved Items
Want Surprises From the Fed? Don’t Hold Your Breath

(Bloomberg Opinion) -- Just wait 'til next season! Or not.

On the face of it, today marks the end of an era for the Federal Reserve. The world's most powerful central bank held its last quiet policy meeting: From now on, each of its twice-quarterly interest-rate-setting powwows will be followed by a news conference. This has led some Fed watchers to believe that the central bank might change rates more frequently -- that is, every meeting will be "live."

Actually, the new era may be more like the last than many people appreciate.

From 2011 through today, the Fed held a media briefing after every other policy-making meeting. This created an expectation that it would adjust borrowing costs only when it had that quarterly news conference to explain its actions, along with fresh economic projections to back them up. Markets didn't take officials seriously when they insisted that every meeting was live. Critics said the Fed had become too predictable, killing off the volatility that allows traders to make money.

So when the central bank announced in June that it would always have a news conference, the move was seen as a big deal. But don't equate it with revolution. It's incremental evolution.

I doubt meetings will be any more or less alive under the new format, for two reasons: the experience of the European Central Bank, and the need for consistency and clarity in policy.

The ECB has a lot more experience with news conferences than the Fed. Its policy has been to hold one after every meeting since the euro was launched in 1999; the Fed started only in 2011, under then-chairman Ben Bernanke. The briefings have, on occasion, offered surprises: There was a protester throwing confetti and shouting "End ECB Dictatorship!" in 2015, and a step toward winding up quantitative easing in October 2017. For the most part, though, officials preferred to wait until they had new quarterly economic forecasts to support shifts in stance.

The Fed has ample reason to be predictable, too -- and it's not just about the market gyrations of the past few months. With each quarter-point increase, the central bank gets closer to the neutral rate at which it is neither stimulating nor damping growth -- and hence closer to the point at which it might pause. The calculus gets trickier as global growth slows and emerging markets remain troubled. While the Fed is supposed to focus on the U.S. economy, concerns about the world beyond America's shores do figure into its deliberations. They caused it to limit rate increases in 2015 and 2016, for example.

I suppose the Fed could raise rates before one of the new media briefings just to make a point. As if to say: "We told you every meeting was live! Do you believe us now?" But that would be self-defeating. What the world needs now is a measured and prudent approach.

The Fed will be as wary of surprises as ever. Good. The times warrant discretion rather than valor.

Want Surprises From the Fed? Don’t Hold Your Breath

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email