- The US Federal Reserve has a “real problem” with communication, top economist Mohamed El-Erian told Bloomberg TV.
- The Fed last week signaled rate cuts for next year, sending the markets on a rally.
- But several Fed officials are now saying the markets are getting ahead of themselves.
The US Federal Reserve’s statements aren’t the easiest to decipher.
They get so wordy and dense that banks and research houses employ teams of people to decode them, and it doesn’t help that Fed officials sometimes give conflicting statements.
Now, a top economist is outright saying the central bank is a poor communicator.
“The whole point of Fed communication is to do two things: One is to be transparent, and two is to enhance the power of forward policy guidance. Instead, Fed communication confuses people,” Mohamed El-Erian told Bloomberg Television on Tuesday.
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“I think we have a real problem with Fed communication,” added El-Erian, the president of Queens’ College, Cambridge.
El-Erian’s comments came after the Fed last Wednesday kept interest rates steady for the third straight time and signaled three rate cuts in 2024 — sending financial markets on a rally.
Some market participants are even pricing in steeper-than-expected rate cuts in anticipation of a weaker economy.
However, after Fed Chair Jerome Powell’s press conference last week, several Fed officials said that expectations of a rate cut early next year are premature or too dovish ahead of inflation data in the months ahead.
El-Erian told Bloomberg such contradicting communications allow markets to lead the central bank.
As El-Erian put it, the market is “trying to bully the Fed because this Fed seems to be willing to be bullied.”
The economist expressed similar views in an opinion piece in the Financial Times on Sunday, saying the markets are running ahead of the Fed’s moves.
“The inflation round-trip is neither simple nor complete. The resulting shift in the configuration of the global economy and financial markets will be felt for several years,” El-Erian wrote in the FT.
In November, the Consumer Price Inflation rose 3.1% year-over-year. While this was still under the Fed’s 2% target, it was significantly below the 40-year high of 9.1% in June last year.
The Fed did not immediately respond to a request for comment from Business Insider sent outside regular business hours.