Inside investment: Through a glass, darkly
The president of the Federal Reserve Bank of Dallas, Richard Fisher, has compared the effect of quantitative easing on investors to “beer goggles”.
Former chairman of the US Federal Reserve Alan Greenspan once boasted to Businessweek that he would always aim to conclude a sentence "in some obscure way which made it incomprehensible". He was prone to "mumble with great incoherence". And to the army of analysts who pored over Fed-speak with exegetical excitement, he warned: "If I seem unduly clear to you, you must have misunderstood what I said."
The times have changed. Until 1994 the Fed did not even immediately announce the deliberations of the interest-rate-setting Federal Open Markets Committee. Paul Volcker, Greenspan’s predecessor, would call in journalists over the weekend. Given the premium modern central bankers place on communication skills, it is perhaps no surprise that Janet Yellen got the top job at the Fed.
She has long since mastered the art of forward guidance. Yellen’s verbal dexterity will be vital. In many ways her challenge is as great as that faced by her predecessor, Ben Bernanke, during the financial crisis. She has to steer monetary policy towards normalization, beginning with the tapering and reversal of quantitative easing, while keeping a cap on long-term interest rates and without rattling markets. It is quite a balancing act.