Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carol and
Speaker 1: this is Here's Why, where we take one news story
Speaker 1: and explain it in just a few minutes with our
Speaker 1: experts here at Bloomberg. Central bankers are like celebrities in
Speaker 1: the finance world. It's not just their actions, but every
Speaker 1: word they say gets closely scrutinized.
Speaker 2: The word transitory has different meanings to different people. I
Speaker 2: think it's probably a good time to retire that word
Speaker 2: and try to explain more clearly what we mean.
Speaker 1: The ECB is ready to do whatever it takes to
Speaker 1: preserve the Euro.
Speaker 2: And Billie me it will be enough. We are not
Speaker 2: here to close spreads.
Speaker 1: This is not the function of the mission of the ECB.
Speaker 1: Central Bank policy has far eating effects across economies and markets.
Speaker 1: In a world of global investors, everyone's looking to be
Speaker 1: first with any new information about what they're going to
Speaker 1: do or not do next. So here's why we pay
Speaker 1: so much attention to everything central bankers say. Under Opinion
Speaker 1: columnist Daniel Mass joins me, now for more, Daniel, have
Speaker 1: investors always been so obsessed with central bankers and everything
Speaker 1: they have to say?
Speaker 2: So when John Maynard Keynes was envisaging the post World
Speaker 2: War II economic order. He foresaw a situation where central
Speaker 2: banks were at the pinnacle of the globe's economic and
Speaker 2: financial life. And here we are, eighty years on, we're
Speaker 2: not far from that. People have always paid attention to
Speaker 2: what they say. What's different in the contemporary era as
Speaker 2: opposed to the eighties, seventies, sixties and so forth, is
Speaker 2: the volume of words that are out there. I mean,
Speaker 2: these are everyone's central banks. Now hard to envisage today.
Speaker 2: But did you know up until nineteen ninety four the
Speaker 2: Federal Reserve put out no announcement when it changed interest rates.
Speaker 2: It was left to a small group of Fed watchers
Speaker 2: on Wall Street to discern moves in short term money
Speaker 2: mark and say, ah, looks like the Fed has tightened
Speaker 2: or ease. Then there was a revolution. In early nineteen
Speaker 2: ninety four, the FOMC published a two sentence press release
Speaker 2: didn't even say what the level of the funds rate
Speaker 2: was going to be. But as Alan Greenspan later wrote,
Speaker 2: the intention was to bang a gong, and that set
Speaker 2: in train a series of events which has led to
Speaker 2: the era of relative central bank openness that we half.
Speaker 2: So there's a lot to respond to, and markets are
Speaker 2: so much.
Speaker 1: Bigger, so we hear a lot more from central banker
Speaker 1: is but how much do they actually tell us about
Speaker 1: what they're going to do or what they have done?
Speaker 2: Well, this is the signal versus the noise. I think
Speaker 2: one of the challenges that people have is that there
Speaker 2: are so many out there talking. They're not always saying
Speaker 2: precisely the same thing. Some people are dissenters, some people
Speaker 2: are looking to push the envelope in the other direction,
Speaker 2: you know, And it is hard to discern who matters
Speaker 2: at any one given point in the economic cycle. If
Speaker 2: you're talking about the Federal Reserve, for instance, really it's
Speaker 2: the troika that matters. That's not supposed to sound centice
Speaker 2: that it merely refers to the FED Chair, the vice chair,
Speaker 2: and the president of the New York Fed. The rest
Speaker 2: can sometimes matter from time to time, depending on their expertise.
Speaker 2: And the same thing broadly applies with other central banks.
Speaker 2: Like if you're talking about the ECB, listen to the
Speaker 2: chief economist, short, listen to the president, absolutely, listen to France,
Speaker 2: Listen to Germany, listen to Italy. Some of the small
Speaker 2: nations will they talk a lot. Do they really matter
Speaker 2: behind closed doors? I mean, they all matter, but there
Speaker 2: are degrees to this. So part of the problem is
Speaker 2: just discerning who's doing the talking and who to listen to.
Speaker 2: And it's sometimes not just what said, it's what is unsaid.
Speaker 2: But look, what they say is important. It matters for
Speaker 2: guiding expectations, you know. After he left the Fed, Ben
Speaker 2: Bernanki wrote in a Brookings blog, the art of successful
Speaker 2: monetary policy is ninety eight percent talk, two percent action.
Speaker 1: Do they slip up? Do we ever get information that
Speaker 1: rates out as didn't want to reveal that they sort
Speaker 1: of latter out by accident?
Speaker 2: Sometimes there are the little you know, if we were
Speaker 2: writing a detective story, we were reviewing please lats, you know,
Speaker 2: a Raymond Chandler novel, for instance, or some of the
Speaker 2: books subsequently commission by his estate, which say it's that
Speaker 2: little tell you're looking for, that little tell, that's something
Speaker 2: that's just like a little bit out of the rhythm.
Speaker 2: So there's misspeak, and then there are slip ups. Early
Speaker 2: in his tenure, J. Powell slipped up when he said
Speaker 2: to an interview or where a long way from neutral
Speaker 2: people thought were criky. I mean is there a lot
Speaker 2: more to come? That's not really what he meant to say.
Speaker 2: So here's something that I like to refer to. So
Speaker 2: everyone is familiar with Mario Draghi's whatever it takes line,
Speaker 2: possibly the most celebrated phrase in twenty first century economic history. Okay,
Speaker 2: but it's what he said after that, you know, that
Speaker 2: got me really enthusiastic. And it was and believe me,
Speaker 2: it will be enough. Yeah, what powerful words they turned
Speaker 2: out to be.
Speaker 1: You've been writing recently about why in this moment, whereasentra
Speaker 1: banks are pivoting, it's even more important for them to
Speaker 1: communicate clearly why.
Speaker 2: Part of this is the ghost of transitory. So from
Speaker 2: say late twenty twenty one through to the middle of
Speaker 2: last year, we've had the most aggressive hiking cycle in
Speaker 2: at least a generation, and given the low base from
Speaker 2: where we started at the depth of the pandemic, probably ever,
Speaker 2: or at least certainly in the modern era, because there
Speaker 2: was so much egg on face after the transitory era.
Speaker 2: And by the way, I'm not trying to pick on J. Powell,
Speaker 2: a lot of central banks around the world, including in Asia,
Speaker 2: used very similar words, but transitory seems to have captured
Speaker 2: the zeitgeist. No one wants to be the person to
Speaker 2: declare all clear and then have inflation go back up again,
Speaker 2: potentially a career ending comment. So, particularly right now at
Speaker 2: this inflection point, as the cycle gets underway, folks are
Speaker 2: going to be very very cautious about how they're framing it.
Speaker 2: It's almost like what excuse me, did you cut?
Speaker 1: Or what plenty to watch out for? And making that
Speaker 1: Jacksonville meeting all the more interesting. Bloomberg Opinion columnist Daniel
Speaker 1: Mass thank you very much for joining us. You can
Speaker 1: read Daniel's recent piece on this, Welcome to the Yes
Speaker 1: Butt Cycle of rate cuts at Bloomberg dot com. Forward
Speaker 1: slash Opinion for more explanations like this from our team
Speaker 1: of twenty seven hundred journalists and analysts around the world.
Speaker 1: Search for Quick Take on the Bloomberg website or Bloomberg
Speaker 1: Business app. I'm Stephen Carol. This is Here's why. I'll
Speaker 1: be back next week with more. Thanks for listening.