When I started in the U.S. government bond market in the 1980s, the Fed was about as transparent as a rock. They held no press conferences. They did not release their minutes or summaries.
Official announcements about change in the fed funds target rate came after the fact and had no details. The Fed operated exclusively through a small club of “primary dealers” (my firm was one of them).
There was no official license given to be a primary dealer. It was a business relationship that the Fed could take away (but rarely did). It just meant you were on an approved list for dealing with the open market desk at the Fed. Even within that small approved list, the Fed had a few “favorites” to whom they leaked their intentions.
When the Fed wanted to change course, they would conduct systemwide repos (or reverse repos), or they would switch from general collateral to “specials.” Only by being on the other side of the trade would a primary dealer know what the Fed was up to. Then we could share this information with our top customers (or not). The rest of the market had to tease out the policy based on market reaction, rumors and leaks to the press.
How times have changed! Now the Fed holds press conferences, releases detailed statements of policy announcements and promptly publishes minutes of their meetings. The Fed also offers economic forecasts of Fed governors (the “dots”) and governors give speeches about every other day. But is this more transparent?
In form it is, but in substance maybe not. The reason is the Fed doesn’t really know what it’s doing. Their beloved Phillips curve has broken down, inflation is nowhere to be found (after printing $3.5 trillion in new money) and the Fed is on a destructive path of raising rates and burning money in the face of a weakening economy.
This article is just the latest evidence that the Fed is winging it. A few weeks ago, Fed Chair Jay Powell said the Fed was a “long way” from its “neutral” rate, and then he said last week the Fed was “just below” its neutral rate and then he suggested the Fed might “wait and see” on rate hikes after earlier implying it was on a steady course to raise rates.
The market has swung wildly in response to each utterance, even when they contradict each other. Get ready for more of the same. The Fed doesn’t know what it’s doing. That’s transparent.
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