WEBVTT - Here's Why We Pay So Much Attention To What Central Bankers Say

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carol and

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<v Speaker 1>this is Here's Why, where we take one news story

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<v Speaker 1>and explain it in just a few minutes with our

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<v Speaker 1>experts here at Bloomberg. Central bankers are like celebrities in

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<v Speaker 1>the finance world. It's not just their actions, but every

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<v Speaker 1>word they say gets closely scrutinized.

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<v Speaker 2>The word transitory has different meanings to different people. I

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<v Speaker 2>think it's probably a good time to retire that word

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<v Speaker 2>and try to explain more clearly what we mean.

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<v Speaker 1>The ECB is ready to do whatever it takes to

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<v Speaker 1>preserve the Euro.

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<v Speaker 2>And Billie me it will be enough. We are not

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<v Speaker 2>here to close spreads.

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<v Speaker 1>This is not the function of the mission of the ECB.

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<v Speaker 1>Central Bank policy has far eating effects across economies and markets.

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<v Speaker 1>In a world of global investors, everyone's looking to be

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<v Speaker 1>first with any new information about what they're going to

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<v Speaker 1>do or not do next. So here's why we pay

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<v Speaker 1>so much attention to everything central bankers say. Under Opinion

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<v Speaker 1>columnist Daniel Mass joins me, now for more, Daniel, have

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<v Speaker 1>investors always been so obsessed with central bankers and everything

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<v Speaker 1>they have to say?

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<v Speaker 2>So when John Maynard Keynes was envisaging the post World

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<v Speaker 2>War II economic order. He foresaw a situation where central

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<v Speaker 2>banks were at the pinnacle of the globe's economic and

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<v Speaker 2>financial life. And here we are, eighty years on, we're

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<v Speaker 2>not far from that. People have always paid attention to

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<v Speaker 2>what they say. What's different in the contemporary era as

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<v Speaker 2>opposed to the eighties, seventies, sixties and so forth, is

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<v Speaker 2>the volume of words that are out there. I mean,

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<v Speaker 2>these are everyone's central banks. Now hard to envisage today.

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<v Speaker 2>But did you know up until nineteen ninety four the

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<v Speaker 2>Federal Reserve put out no announcement when it changed interest rates.

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<v Speaker 2>It was left to a small group of Fed watchers

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<v Speaker 2>on Wall Street to discern moves in short term money

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<v Speaker 2>mark and say, ah, looks like the Fed has tightened

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<v Speaker 2>or ease. Then there was a revolution. In early nineteen

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<v Speaker 2>ninety four, the FOMC published a two sentence press release

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<v Speaker 2>didn't even say what the level of the funds rate

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<v Speaker 2>was going to be. But as Alan Greenspan later wrote,

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<v Speaker 2>the intention was to bang a gong, and that set

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<v Speaker 2>in train a series of events which has led to

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<v Speaker 2>the era of relative central bank openness that we half.

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<v Speaker 2>So there's a lot to respond to, and markets are

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<v Speaker 2>so much.

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<v Speaker 1>Bigger, so we hear a lot more from central banker

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<v Speaker 1>is but how much do they actually tell us about

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<v Speaker 1>what they're going to do or what they have done?

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<v Speaker 2>Well, this is the signal versus the noise. I think

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<v Speaker 2>one of the challenges that people have is that there

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<v Speaker 2>are so many out there talking. They're not always saying

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<v Speaker 2>precisely the same thing. Some people are dissenters, some people

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<v Speaker 2>are looking to push the envelope in the other direction,

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<v Speaker 2>you know, And it is hard to discern who matters

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<v Speaker 2>at any one given point in the economic cycle. If

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<v Speaker 2>you're talking about the Federal Reserve, for instance, really it's

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<v Speaker 2>the troika that matters. That's not supposed to sound centice

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<v Speaker 2>that it merely refers to the FED Chair, the vice chair,

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<v Speaker 2>and the president of the New York Fed. The rest

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<v Speaker 2>can sometimes matter from time to time, depending on their expertise.

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<v Speaker 2>And the same thing broadly applies with other central banks.

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<v Speaker 2>Like if you're talking about the ECB, listen to the

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<v Speaker 2>chief economist, short, listen to the president, absolutely, listen to France,

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<v Speaker 2>Listen to Germany, listen to Italy. Some of the small

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<v Speaker 2>nations will they talk a lot. Do they really matter

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<v Speaker 2>behind closed doors? I mean, they all matter, but there

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<v Speaker 2>are degrees to this. So part of the problem is

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<v Speaker 2>just discerning who's doing the talking and who to listen to.

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<v Speaker 2>And it's sometimes not just what said, it's what is unsaid.

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<v Speaker 2>But look, what they say is important. It matters for

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<v Speaker 2>guiding expectations, you know. After he left the Fed, Ben

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<v Speaker 2>Bernanki wrote in a Brookings blog, the art of successful

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<v Speaker 2>monetary policy is ninety eight percent talk, two percent action.

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<v Speaker 1>Do they slip up? Do we ever get information that

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<v Speaker 1>rates out as didn't want to reveal that they sort

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<v Speaker 1>of latter out by accident?

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<v Speaker 2>Sometimes there are the little you know, if we were

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<v Speaker 2>writing a detective story, we were reviewing please lats, you know,

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<v Speaker 2>a Raymond Chandler novel, for instance, or some of the

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<v Speaker 2>books subsequently commission by his estate, which say it's that

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<v Speaker 2>little tell you're looking for, that little tell, that's something

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<v Speaker 2>that's just like a little bit out of the rhythm.

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<v Speaker 2>So there's misspeak, and then there are slip ups. Early

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<v Speaker 2>in his tenure, J. Powell slipped up when he said

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<v Speaker 2>to an interview or where a long way from neutral

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<v Speaker 2>people thought were criky. I mean is there a lot

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<v Speaker 2>more to come? That's not really what he meant to say.

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<v Speaker 2>So here's something that I like to refer to. So

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<v Speaker 2>everyone is familiar with Mario Draghi's whatever it takes line,

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<v Speaker 2>possibly the most celebrated phrase in twenty first century economic history. Okay,

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<v Speaker 2>but it's what he said after that, you know, that

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<v Speaker 2>got me really enthusiastic. And it was and believe me,

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<v Speaker 2>it will be enough. Yeah, what powerful words they turned

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<v Speaker 2>out to be.

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<v Speaker 1>You've been writing recently about why in this moment, whereasentra

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<v Speaker 1>banks are pivoting, it's even more important for them to

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<v Speaker 1>communicate clearly why.

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<v Speaker 2>Part of this is the ghost of transitory. So from

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<v Speaker 2>say late twenty twenty one through to the middle of

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<v Speaker 2>last year, we've had the most aggressive hiking cycle in

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<v Speaker 2>at least a generation, and given the low base from

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<v Speaker 2>where we started at the depth of the pandemic, probably ever,

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<v Speaker 2>or at least certainly in the modern era, because there

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<v Speaker 2>was so much egg on face after the transitory era.

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<v Speaker 2>And by the way, I'm not trying to pick on J. Powell,

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<v Speaker 2>a lot of central banks around the world, including in Asia,

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<v Speaker 2>used very similar words, but transitory seems to have captured

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<v Speaker 2>the zeitgeist. No one wants to be the person to

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<v Speaker 2>declare all clear and then have inflation go back up again,

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<v Speaker 2>potentially a career ending comment. So, particularly right now at

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<v Speaker 2>this inflection point, as the cycle gets underway, folks are

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<v Speaker 2>going to be very very cautious about how they're framing it.

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<v Speaker 2>It's almost like what excuse me, did you cut?

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<v Speaker 1>Or what plenty to watch out for? And making that

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<v Speaker 1>Jacksonville meeting all the more interesting. Bloomberg Opinion columnist Daniel

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<v Speaker 1>Mass thank you very much for joining us. You can

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<v Speaker 1>read Daniel's recent piece on this, Welcome to the Yes

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<v Speaker 1>Butt Cycle of rate cuts at Bloomberg dot com. Forward

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<v Speaker 1>slash Opinion for more explanations like this from our team

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<v Speaker 1>of twenty seven hundred journalists and analysts around the world.

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<v Speaker 1>Search for Quick Take on the Bloomberg website or Bloomberg

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<v Speaker 1>Business app. I'm Stephen Carol. This is Here's why. I'll

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<v Speaker 1>be back next week with more. Thanks for listening.