The Federal Reserve came under fire from Wall Street for sowing "confusion" over one of its high-ranking officials in the market, highlighting the communication problem facing the US central bank as it moves toward a historic interest rate cut.
Causes outrage at statements made by John Williams, President of the Federal Reserve Bank of New York and a key monetary policy, for economists and investors because they weigh the magnitude of the likely monetary easing that will happen at the end of this month.
Until Thursday, the consensus suggested that the Fed would cut its rate by 25 basis points as a limited insurance policy against weakening global economies and trade tensions. But the chances of a reduction of 50 basis points increased, and the US Treasury obligations increased after Mr. Williams outlined the arguments in favor of "preventive" actions in terms of low interest rates and low inflation.
This triggered an unusual explanation by the New York Fed that Mr. Williams’s comments “do not address potential political actions at the upcoming FOMC meeting,” which reduced the likelihood of a more aggressive decline to 37% from Friday from 66% to Thursday.
“I think we have too many cooks in the kitchen when it comes to public speaking at the Fed, and it sows the seeds of confusion,” said David Rosenberg, chief economist and strategist at Gluskin Sheff, an asset management firm. “There was a time when the Fed was accused of insufficient transparency. Now the pendulum has swung too far in another direction, especially at a time when there are so many different views. ”
A statement by the New York Fed was sounded a few hours after one of the high-ranking Fed officials, Vice Chairman Richard Clarida, pointed out the need for mitigation before the economic data became more negative, adding another bluish voice to the mix.
For Ebragim Rahbari, Gig's main currency strategist at Citigroup, parallel planning of Mr. Williams and Mr. Clarida’s public speeches was planned, prompting him to switch his forecast for the July meeting to a 50 bp decline, having previously expected two 25 bp. P. cuts the next two meetings.
“In the end, we were very embarrassed by the fact that the message we received was in many ways a coordinated attempt to give a signal to the market, taking into account its timing and context,” said Rahbari. "It was just before the Fed shutdown period, and two of the three most influential members of the FOMC spoke."
Mr Rahbari said that the subsequent intervention of the New York Fed meant that he was “very unsure” about the likelihood of a two-step reduction at the next meeting.
On Friday, James Bullard, president of the St. Louis Fed, said he was in favor of reducing by 25 basis points in July. Speaking to reporters after speaking on cryptocurrencies, Mr. Bullard said that a smaller cut would leave the Fed a chance to move later this year.
Larry Fink, executive director of BlackRock, said that the central bank would raise concerns about the state of the US economy if it lowered rates by half a percentage point.
“If they made a reduction of 50 basis points, it would most likely lead to a panic of stocks,” Mr. Fink said in an interview with the Financial Times. "It would scare the market."
Donald Trump also pounced on Fed criticism via Twitter, aiming at the “erroneous thinking process” of the central bank.
He wrote: “Because of the wrong thinking process that we have in the Federal Reserve, we pay much higher interest rates than countries that do not correspond to us economically.”
The US president also explicitly mentioned the Fed’s speech in New York. "I like the first statement of the New York Fed President John Williams is much better than his second," wrote Trump.
The hot debate over Mr. Williams’s speech began after Mr. Powell was consistent in signaling that the US central bank was prepared to lower interest rates, saying that he “would act accordingly to support expansion” under gloomy global growth and the ongoing trade war between the United States and China.
However, the Fed chief tried not to show his cards on the scale of weakening, which may indicate real tensions between Fed officials regarding further actions.
“We see a lot of unstable opinions,” said Gershon Diestenfeld, co-chair of the fixed income division of AllianceBernstein. “I do not remember the time in recent history when you had so much rhetoric. Disagreements are usually hashed behind closed doors. ”
Other investors welcome many Fed comments, no matter how puzzling they are.
“The more information we can get, and the more we understand what the Fed thinks, the better,” said Mike Ryan, investment director for North and South America at UBS Global Wealth Management.