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Controlled Leaks And Ramping

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    December 6, 2011

    I got a laugh at this article by Jon Hilsenrath at the Wall Street Journal. (Link)

    This is another in a string of articles by Jon where Bernanke is clearly providing a portion of the content. The thrust of this one is that the Fed is going to change its communication policy in the upcoming Fed meeting. From the article:

    Federal Reserve officials are close to completing an overhaul of how they signal their policy plans to the public.

    The Fed has said publicly that they are monitoring the blogs in an effort to get a handle on what is being said about them outside of the MSM. I assume they will be reading this. I hope those “readers” pass this note along to Bernanke. Possibly it will help the Fed heads steer their new communications policy to a better place.

    My suggestion to the Fed is that they stop leaking what they are going to do at the next meeting to the WSJ. This is the worst form of communication policy. In my opinion it makes the Fed look stupid. It makes the Journal look like a beard.

    When Hilsenrath quotes ,”unnamed sources close to the matter” and the next words are clearly coming from the Chairman, there are thousands of readers who look at it and say , “Plant”.

    Policy steps by the Fed have been consistently telegraphed in advance for the past three years. In Japan this is called, “Official Guidance”. Very few people (outside of finance) understand that the Fed is giving official guidance through the press. The Fed should end this. If they have something to say, they should come out with a formal statement that people can actually pick apart.

    The change in the communication strategy is going to happen pretty quickly. Sometime in January at the latest. The openness, clarity, honesty and integrity of the new policies will be put to the test not long after. It is a 50-50 shot that the Fed will announce a new LSAP sometime in the first quarter. If that were to happen we will get wind of it through press leaks in February. That would be the way it would unfold absent real changes in the way the Fed disseminates information.

    So we shall see by March. If we get a leak of what’s coming from the Fed in the New Year, then we will know that the new policy of “open communication” is just for show. That would be my guess on the outcome. Bernanke’s Fed may profess to have adopted a new standard, but they’ll keep up the whispers on the side. They will do anything they can to achieve their objectives, including any manipulation that might be desired.

    Images: Flickr (licence attribution)

    About The Author – Bruce Krasting

    I worked on Wall Street for twenty five years. This blog is my take on the financial issues of the day. I was an FX trader during the early days of the ‘snake’ and the EMS. Derivatives on currencies were new then. I was part of that. That was with Citi. Later I worked for Drexel and got to understand a bit about balance sheet structure and corporate bonds from Mike Milken. I was involved with a Macro hedge fund later. That worked out all right, but it is not an easy road. There was one tough week and I thought, “Maybe I should do something else for a year or two.” That was fifteen years ago. I love the markets. How they weave together. For twenty five years I woke up thinking, “What am I going to do today to make some money in the market”. I don’t do that any longer. But I miss it.