Some things never change .... like Communications SNAFUs for example


ref : "Yellen's Interest - Rate Comment Illustrates the Market's Greatest Worry" , The Wall Street Journal, Markets


To be fair, the WSJ piece is not really about communication foul-ups as such. But in explaining how yesterday's sharp late reversal in equity prices in general and growth stocks (esp. techs) in particular came to pass, it inevitably identified one .... albeit a very minor addition (we assume) to what is a long and inglorious catalogue.


Treasury Secretary Janet Yellen prompted the sell-off by saying that interest rates MAY have to rise a little at some point in the future if the economy looks like overheating as a result of massive stimulus programmes and long-term government spending. Oh, the horror of it! You'd have thought that Ms. Yellen had announced the first signs of impending Armageddon, rather than making a rather bland statement of what surely should be obvious. But things don't work the logical way when markets (already aware that by most traditional methodologies valuations may be (over)stretched) are hypersensitive to any official reference, however non-committal, to their overwhelming anxiety of the moment -- namely, the potential for future rises in inflation and the hikes in interest rates that might be required to deal with them.


We know that Ms. Yellen may have put her foot in it a little because she later felt obliged to row back her comments at a WSJ shindig. It was an interesting sequence of events, not least because before she was Treasury Secretary Ms. Yellen was of course a highly regarded Chair of the Federal Reserve who was well aware of the dangers of seemingly innocuous statements provoking excessive, even violent, reactions in skittish markets. She would have witnessed the Taper Tantrum of 2013 at first hand -- that unfortunate occasion when then-Fed Chair Ben Bernanke said that the enormously high levels of Fed bond purchases (QE) would gradually be reduced at some point and in doing so provoked a huge sell-off in bonds prices and hike in bond yields.


One could argue that Mr. Bernanke was only saying what most would have assumed anyway, but on that occasion, even the most charitable would have to concede that he was naive not to expect a severe reaction from jittery markets and that his communication skills left much to be desired. That's much easier said in hindsight of course, and we can rest assured that there will be plenty more snafus of the kind in future.


Hopefully not in the near future, though. If anything, the market is even more nervous now than it was then. We know that current Fed boss Jay Powell has said that he's prepared to tolerate a modest overshoot of the 2% inflation target but that doesn't seem to have made investors much more secure. Any missteps in communication will surely have severe repercussions.


As for Ms. Yellen, could it be that she's pondering the wisdom of a political appointee (as she is now) musing over monetary policy -- even if she was the most important monetary policy boss on the planet in a previous incarnation. Perhaps the experience (and that of Mr. Powell) of presidential castigation during the Trump years made her momentarily forget that in the preceding years it was the practice to leave monetary policy statements to central bankers, and let them get into trouble. Just a thought .....

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