Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carroll, 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. Anybody who thinks central banking, especially
Speaker 1: if you're head of a central bank, is a delightful activity,
Speaker 1: let me disabuse you.
Speaker 2: It's torture.
Speaker 1: Everybody on Wall Street has wanted to ask you for
Speaker 1: four years. Since this is your last press conference, can
Speaker 1: you tell us which dot is yours?
Speaker 2: The answer is no, I've never been willing to reveal
Speaker 2: which dot is mine.
Speaker 1: It's appropriate sometimes to look through inflation if it's going
Speaker 1: to go away quickly without action by us, If it's transitory,
Speaker 1: central banker's words can move hundreds of billions of dollars
Speaker 1: in for rate setters. Communication is an art form. One
Speaker 1: slip up can spark massive market moves. So Kevin worsh
Speaker 1: wants a different approach under his leadership of the Federal Reserve.
Speaker 1: When all the financial markets are doing is reflecting back
Speaker 1: what we've said, then we're taking the most important source
Speaker 1: of information and we're being blind to it, but saying
Speaker 1: less about monetary policy. Goes against the trend of central
Speaker 1: banks globally. Here's why the Fed is saying less. Our
Speaker 1: Federal Reserve report around the current joins us now for more.
Speaker 1: And first of all, what is the general approach that
Speaker 1: central bankers take when it comes to talking about their
Speaker 1: policy decisions.
Speaker 2: Well, if you go back maybe thirty years Stephen, central
Speaker 2: bankers really went out of their way to say very
Speaker 2: little at all in terms of where policy and industrates
Speaker 2: were going. That's how they did business. Things change a
Speaker 2: lot in and around say that financial crisis time. We
Speaker 2: started to get more press conferences, more or speeches, a
Speaker 2: lot more communications, and indeed something called forward guidance entered
Speaker 2: a lexicon. This was the idea where central bankers started
Speaker 2: giving fairly strong signals in terms of where they think
Speaker 2: interest rates are headed in the months and in the
Speaker 2: years ahead. Now, in the years since, that has drawn
Speaker 2: criticism because, in the views of some people, there's now
Speaker 2: too much communication. There's over communication, you're complicating the outlook.
Speaker 2: Too many officials are giving speeches, there are too many
Speaker 2: ways of reading the tea leaves on digesting what the
Speaker 2: central blank plans to do. It all needs to be
Speaker 2: simplified and that's kind of the space we're in now
Speaker 2: with the Federal Reserve typically speaking every week, officials are
Speaker 2: out there giving speeches. They could be giving interviews, they
Speaker 2: could be doing podcasts, there could be communicating through other
Speaker 2: avenues like literature and the like. And with new FED
Speaker 2: Chairman Kevin Warsh, he's saying, listen, it's time to start
Speaker 2: thinking and saying that less is more. So fewer speeches,
Speaker 2: perhaps even fewer press conferences. He has set up this
Speaker 2: group to think about ways to improve and streamline the
Speaker 2: FED communications. But his overall approaches we need to slow
Speaker 2: down and just speak when we really have something to say.
Speaker 1: So tell us a bit more about why Kevin Worsh
Speaker 1: decided to make this change now.
Speaker 2: Well, look, there is a view, of course. On the
Speaker 2: one hand, there are those who advocate for transparency. The
Speaker 2: central Bank needs to communicate its policy. The public needs
Speaker 2: to understand what's going on, and of course that is
Speaker 2: the central role for the central bank. The issue is
Speaker 2: it can become a little bit confusing. There's a term
Speaker 2: now in the US FED speak, and that's when these
Speaker 2: officials are out every other day giving a speech, want
Speaker 2: to saying interest rate's going up? Want to saying inter
Speaker 2: rates staying stable. Maybe somebody else somewhere in that chain
Speaker 2: of command of the FED says something different, and the
Speaker 2: end result can be kind of a muddle picture in
Speaker 2: terms of where is policy headed over the months ahead.
Speaker 2: That's the critics view, and their point is that, look,
Speaker 2: there's really no business. There's no need for someone official
Speaker 2: to be speaking and communicating the way they are all
Speaker 2: the time. It just needs to be more refined, honed,
Speaker 2: hone that message down and just speak as a team
Speaker 2: when you have something to say. And I think that's
Speaker 2: where the pushback is against the current kind of FED approach.
Speaker 1: So does Kevin Worth have much control in this situation?
Speaker 1: Can he actually stop the other right setters from going
Speaker 1: out and talking about their thoughts on monetary policy.
Speaker 2: He's the chairman of the federers there, but really it
Speaker 2: operates on a kind of a consensus approach over there, Stephen,
Speaker 2: and he doesn't, in terms of being a boss or manager,
Speaker 2: have the authority to win and say you can't give
Speaker 2: a speech this week. He can't stop his fellow governors
Speaker 2: from doing that, for example, and he can't stop the
Speaker 2: regional FED presidents from doing that. But he can set
Speaker 2: the tone he can guide, he can say, listen, I
Speaker 2: think we're all speaking a bit too much at the moment.
Speaker 2: And by the way, the economy right now is in
Speaker 2: a complicated space. You have the energy story going on,
Speaker 2: you have this extraordinary AI boom, and truth no one
Speaker 2: quite knows how that is going to play out. You've
Speaker 2: lots of different issues going on with underlying inflation, the
Speaker 2: jobs markets suddenly stabilized. So it's all very confusing, and
Speaker 2: there probably is a case we made for right now
Speaker 2: saying less until people get a clearer picture and where
Speaker 2: things are headed. But nonetheless, the balance and all of this,
Speaker 2: Steven is trying to make sure there is transparency. These
Speaker 2: are public officials. The public does need to know what's
Speaker 2: going to be happening with the interest rates and their
Speaker 2: savings and their mortgage and everything else. Balancing that transparency
Speaker 2: with also, you know, not doing the overkill where the
Speaker 2: signal just becomes noise after a while.
Speaker 1: One of the consequences then at this change for investors
Speaker 1: who comb over all those words from central bankers very closely.
Speaker 2: So this is very tricky to get right. Steven, let
Speaker 2: me be clear, while I've tried to acknowledge both sides
Speaker 2: of this argument. I do want to say that the
Speaker 2: danger here, or the warning is that if you leave
Speaker 2: a void, something is going to fill the void in
Speaker 2: the absence of communication. Now it might be overwaiting one
Speaker 2: or two individual officials commentary in the policy making process,
Speaker 2: or could be markets happily obliging filling the gap themselves
Speaker 2: and deciding where they think interest rates are going, where
Speaker 2: they think markets are headed and policy is headed. And
Speaker 2: of course that's not necessarily a helpful thing for the
Speaker 2: FED because they Fed likes the guide markets in the
Speaker 2: direction they wanted to go. So it's very tricky stuff.
Speaker 2: You can argue the case, as we've just been discussing
Speaker 2: that perhaps it can be refined more and there really
Speaker 2: isn't a need to give a speech at every Chamber
Speaker 2: of Commerce in the country every second week of the year.
Speaker 2: They can argue that case. And by the way, there
Speaker 2: is a task force. One of those people leaving the
Speaker 2: task force as former Bank of England Governor Marvin King.
Speaker 2: They're looking at how to change up the Fed's communications.
Speaker 2: So you know, you can put all that on the table,
Speaker 2: but equally pulling off that balancing act is a tricky
Speaker 2: one given the years now of communication. You know, I
Speaker 2: don't think anyone's advocating rolling it back to where we wore, say,
Speaker 2: twenty thirty years ago, but even tweaking what we have
Speaker 2: at the moment is certainly going to take a while
Speaker 2: for everyone to adjust to.
Speaker 1: Is this something that other central bank could choose to
Speaker 1: follow the FED in?
Speaker 2: Well, you could say that the FED was the standard
Speaker 2: bearer globally for leading the way in terms of you know,
Speaker 2: setting out the soul and in terms of communications, the
Speaker 2: rotation of speeches, the publication of minutes. It's not that
Speaker 2: other central banks weren't taking similar steps, but the FED
Speaker 2: is the world's most important central bank, and it has
Speaker 2: led the way in disregard and it does set the
Speaker 2: standard for others. And there is a concern that if
Speaker 2: the FED pulls back on its communications writ large and
Speaker 2: it leaves a void, well, that could leave say, emerging
Speaker 2: market central banks and economies vulnerable because if markets start
Speaker 2: to become wobbly or volatile in the absence of news
Speaker 2: and the FED, well, that will impact spillover of course
Speaker 2: through the dollar channels into emerging markets around the world
Speaker 2: as well. That's number one and number two, there's a
Speaker 2: view that, well, if the FED is pulling back in communications,
Speaker 2: maybe other governments might encourage their central banks around the world. Look,
Speaker 2: you don't need to be speaking youse often either. Why
Speaker 2: don't you start rainy and your messaging as well. So
Speaker 2: there is a worry about kind of spill over and
Speaker 2: pressing that it might set for others. And that's why
Speaker 2: it's a really challenging thing to get right here, Stephen,
Speaker 2: because as I said, there is a constituency that says
Speaker 2: there's too much FED speak that has speak knowledge. But
Speaker 2: I don't know of many who say communications should be
Speaker 2: trimmed back dramatically overall, because that raises risks in itself.
Speaker 1: And we'll be watching with interest to see how that
Speaker 1: debate plays out. End of for now. Thank you. That's
Speaker 1: end of current our Federal Reserve Reporter. For more explanations
Speaker 1: like this from our team of three thousand journalists and
Speaker 1: analysts around the world, go to Bloomberg dot com slash explainers.
Speaker 1: I'm Stephen Carroll. This is here's why. I'll be back
Speaker 1: next week with more. Thanks for listening.