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The Fed Seems to Have Learned a Communications Lesson



The Federal Reserve deserves some credit for its recent handling of communications on interest rate policy.

Fed Chair Janet Yellen’s leadership took a hit earlier in her tenure when a cacophony of voices, particularly from regional Fed presidents, derailed the cohesiveness of the central bank’s message, leaving investors confused and financial markets unduly volatile. At the same time, a sense that repeated hints at higher rates had given way to some reason or another not to hike them was posing a challenge to Fed credibility.

But in the run-up to this month’s policy meeting, which takes place on June 14–15, the central bank has handled the communications game rather deftly.

First, the Fed’s Board of Governors let the usual wave of regional Fed speakers make their pronouncements, speculating on whether or not an interest rate hike was “on the table” in June. All five of the ones who spoke in a single week, almost in tandem, agreed that a June hike was very much a live possibility. This caught the attention of a bond market that, until recently, wasn’t even sure the Fed would hike again this year at all.

Then, Fed Board Governor Jerome Powell seized on a speech at the Peterson Institute for International Economics to offer a more circumspect view of the central bank’s timing.

“I’m the first board member to say anything about this. A lot of the bank presidents have been talking,” said Powell in response to a questions from the audience. “How I would vote? The great thing is I don’t have to decide until June 15. I really think you discard the opportunity to evaluate incoming information when you decide too early.”

“The risks of waiting are frankly not so great,” he added. “This doesn’t feel like an economy that’s bubbling over or threatening to break into high inflation.”

Then Chair Yellen herself chimed in, echoing Powell’s message—rate hikes are coming soon, but let’s not commit to any meetings.

She told an audience at Harvard University that it would be appropriate “for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate.”

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