Whenever any member of the Federal Open Market Committee or president of the various Federal Reserve banks speaks, the markets listen and trade on the interpretation of those words.
How’s the economy and where are interest rates headed?
Today it was Charles I. Plosser’s turn at the Main Line Chamber of Commerce. And the Philly Fed president’s message was delivered in typical Fedspeak: “I think the U.S. economy will experience several quarters of sluggish growth in 2008 before returning to a sustained expansion over the next two years.”
Plosser indicated further rate cuts may be necessary but would not say whether he would call for a cut Jan. 30. But today’s econo-spiel was a little different for him: It was his first speech as a voting member of the FOMC.
Inquirer staff writer Harold Brubaker, who covered the speech, said he’d never seen so many media outlets at a chamber of commerce meeting. He also said it was striking that “I didn’t say that” was Plosser’s response several times during a question-and-answer session after the speech. His new status as a Man Whose Opinion Really Counts will mean his comments will be dissected more closely.
Witness the headlines cycling on the Bloomberg terminal immediately following the event at the Philadelphia Country Club:
Fed’s Plosser Says 'Weaker' Outlook May need More Rate Cuts -- Bloomberg News
Fed’s Plosser Says Don’t Forget Inflation -- Wall Street Journal
Fed’s Plosser says inflation risks complicate policy -- USA Today
But global financial markets don’t dwell on the comments of one Fed president in Gladwyne too long. After all, there was Treasury Secretary Henry Paulson’s media surge on CNBC, Bloomberg and other channels this morning, defending the growing U.S. economy and the challenges facing it. There were fresh worries about housing (down) and oil prices (up).
In November, Bernanke promised more transparency at the Fed. That may be what he’s getting from Plosser and other Fed bank presidents. But as they have demonstrated, transparency does not necesarily lead to clarity.
Markets were whipsawed in December by contradictory speeches by various Fed members. A case of too much information? Not enough filtering? Fed watchers and media pundits criticized the new policy as leading to “failure to communicate.”
The media, and by extension its consumers, tend to want certainty. But the ebb and flow economies defy neat cause-and-effect soundbites. The parts are so numerous and intertwined that the best economists and the financial press can hope to do is describe pieces of it and guess at the rest on a given day.
Then do it again the next.
