JP Marin-Arrese │Any seasoned central banker knows by heart that words rather than measures better serve monetary policy. The material effect any move delivers doesn’t match the impact on expectations and market sentiment an authoritative message conveys.
Providing plausible clues for the rate cut enforced last week was by no means an easy task. Yet,as a central banker, Jerome Powell made the worst choice by describing it as an adjustment in the middle of the cycle. A most unfortunate definition that baffled investors leaving them wondering whether the much-heralded U-turn would peter off following this single shot.
By conveying such a confusing message, the Fed Chairman deprived the rate cut of any sensible meaning. Worse still, he undermined all its potential impact, wetting the powder of a bullet designed to invigorate the economy. Pilfering munition when the Fed seems somewhat short of it stands as an unmitigated blunder.
Undoubtedly, Powell is far from a gifted speaker. He fails to deliver subtle and convoluted messages, a useful device frequently put to practice by Greenspan when confronted with tricky issues for which he had no answer. He neither masters economy theory in the way Bernanke did, taking profit from his expertise to divert attention into intractable debates the press proved unable to follow. Still, one expected Powell to perform less clumsily. The Fed should much improve its communication policy to prevent further damage in future.
