Interpreting Fedspeak is simpler than we pretend it is; all you have to do is listen.
Like many people, I privately thought that inflation had been eradicated in the US decades ago.
About 19 months ago, I started writing a column on US markets I’d never seriously contemplated the threat of inflation this high in America.
The point is: Investors sleep on world events at their own peril.
Furthermore: Big global disturbances seem to come in clusters. We should all get our noses out of our spreadsheets and pay attention to the world around us in these volatile times.
In Wall Street, investors and analysts spend countless hours parsing the words, especially those of Chair Jerome Powell.
This tradition comes from decades past, when the Fed was an intentionally opaque institution.
Market participants had to watch the Fed’s open market trading desk for signals.
As former Chair Alan Greenspan told a congressional committee in 1987: “Since I have become a central banker, I have learned to mumble with great incoherence; if I seem unduly clear to you, you must have misunderstood what I said.”
But that philosophy is dead now.
The policy developments of 2022 and 2023 shouldn’t be a surprise to those who have been listening to the Fed all along.
Fed Speakers Mostly Say What They Mean
Policymakers were never going to change their tack until the vanilla inflation gauges — the headline and core personal consumption expenditures index — showed that inflation was reliably converging on the central bank’s 2% target
We are forever doomed to be surprised because the world is too complicated to fit inside a spreadsheet.
Jonathan Levin Bloomberg 12 oktober 2023
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