What will the Fed do during a credit crunch? This is the forecast that many are focusing on, yet we have little information to guide us. The personalities at central banks change and they do not want to signal their intentions too early. Yet, the comments by St Louis Fed president is a perfect example of how central bank comments could be taken out of context. Poole has been a thoughtful economist and a strong leader at the St Louis Fed, but snippets of comments published in news articles can cause more uncertainty than necessary.
He states that only a "calamity" would cause an interest rate cut. So what is a "calamity"? There was no definition given. For many, this crisis has reached close to the calamity stage. He also stated that "no one has called up to say the sky is falling". Perhaps those people have been too busy saving their business.
Clearly, it would be wrong to signal your intentions through the news service, so the cryptic messages do not help the market. of course, there are probably behind the scenes discussions and comments, but clarity from the central bank is necessary right now. Bernanke has been a strong advocate for transparency from the central banks, so this is a great time to put this policy into practice.
No comments:
Post a Comment