Fed's communication branded 'unclear' by economists

Fri Sep 20, 2013 3:11pm EDT
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By Andy Bruce

LONDON (Reuters) - The U.S. Federal Reserve failed to communicate policy clearly in the months leading to Wednesday's surprise decision not to reduce its $85 billion monthly bond-buying policy, according to a firm majority of economists polled by Reuters.

Investors and analysts -- in nearly a dozen consecutive Reuters polls -- had bet that would happen this week, ever since Fed Chairman Ben Bernanke hinted in May that the U.S. central bank would reel in the pace of its stimulus later in the year.

The latest survey, conducted since Thursday, shows the Fed will start tapering its bond purchases in December.

The scale of forecasters' misjudgment produced a clear verdict that the Fed's communication had been "unclear" over the last few months, according to 33 of 48 economists at major international banks, research institutions and trade groups.

The remaining 15 said the Fed had been clear, five of whom forecast correctly that the Fed would maintain its bond purchases this month.

It is rare for a consensus of economists to criticize a major central bank. Reuters polls have shown consistent high marks for the way central banks have handled policy since the global financial crisis erupted in 2008.

Although there is now a clear consensus the Fed will taper in December, confusion about its recent communication means December is not necessarily a done deal.

"In December -- who knows? I think they have lost market trust, and even when they communicate the market will surely question," said Sam Bullard, senior economist at Wells Fargo.   Continued...

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst