Many of you will remember the book the “lord of the flies.” In it, the stranded youths attempt to institute some kind of order at meetings by only allowing the holder of the “conch” to speak. Human nature being what it is we all know how this ended up but it would in the current regime be a helpful tool to eliminate some ambiguity in today’s global markets.
Around the world markets are whipping around one way or the other based on a lot of sound-bites from prominent central bankers. Most central bankers are attempting to utilise “communication” as an aid to their monetary policy to provide guidance and reassurance as to their actions.
It is a very important mechanism to provide reassurance to markets if done correctly as if a entrepeneur knows for instance that rates will stay low in the long term then they can plan their business activities etc with more clarity and should lead to some economic strength. Therefore it is useful as a monetary policy transmission tool.
However with great responsibility comes great power which I feel is being abused at the moment. The lack of clarity or one single voice is causing more confusion than it is solving. It seems every day now that central bankers and their committees are making comments that are either ambiguous or in direct contrast with current policy.
It looks very like manipulation re-branded as “re-assurance” in that any time weakness is sensed then supportive comments hit the tape and whenever things get a bit too frothy then some ambiguous or contrasting comments hit the tape.
A one voice policy from the respective head of the central bank should be implemented at least in spirit if they wish to give actual clarity. Allowing a 9-12 strong committee to make comments at will regarding policy that may differ from the current stance is dangerous and downright irresponsible.
It is true that snippets need to be released on a regular basis to gauge market reactions etc and there is also scope to blame investors for mis-interpretation of these comments but I feel that if comments came from one source that would reduce the confusion and actually provide the clarity that is targeted.
We live in an information sensitive world where word travels fast it would benefit all if that word was consistent and un-ambiguous.