Central bankers vow to guide investors
Top banks say they will help wean shareholders off monetary stimulus rolled out during financial crisis
Four of the world’s top central bankers promised on Tuesday to keep guiding investors about future policy moves as they slowly withdraw the extraordinary monetary stimulus rolled out during the financial crisis.
After pumping some $10-trillion into financial markets since the 2008 crisis – driving them to record highs – the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan are now trying to wean investors off easy money without causing an upset.
To do this, words will be key, the heads of the four central banks told an ECB conference on communication.
“Forward guidance has become a full-fledged monetary-policy instrument,” ECB President Mario Draghi said.
“Why discard a monetary-policy instrument that has proved to be effective?”
Mr. Draghi and his three counterparts are at very different stages in the process.
The Fed is looking at its fifth rate increase and the BoE raised its own rate this month for the first time in 10 years.
But the ECB is merely reducing the pace of its bond purchases, and the BoJ is still printing money at full speed although it has signalled that no additional stimulus is likely.
Fed chair Janet Yellen agreed with Mr. Draghi that guidance has been beneficial “on balance” but stressed it should always be viewed as depending on how the economy actually develops.
“All guidance should be conditional and related to the outlook for the economy,” Ms. Yellen said.
History shows steering markets is not always easy.
Then-Fed chair Ben Bernanke famously sent global bond markets into a tailspin in May, 2013, by suggesting that bond purchases could be reduced. In the event, the “taper tantrum” meant bond buys would not be reduced for another 10 months.
Mr. Draghi had his own minitantrum in June when he suggested that the ECB’s policy could be tweaked to reflect stronger growth. The market sell-off that followed was so big, the eventual scaling back of purchases was relatively small and drawn out.
And BoE Governor Mark Carney’s guidance on the path for interest rates has repeatedly been knocked off course by surprises in the economy, prompting one lawmaker to call him an “unreliable boyfriend.”
Speaking alongside Ms. Yellen and Mr. Draghi, BoJ Governor Haruhiko Kuroda said the best way to avoid misunderstandings was to keep the message simple.
“It should better be straightforward,” he said. “That’s the best way.”
His British counterpart, Mr. Carney, stressed the importance of reaching the broader public, rather than just financial investors.
“We’re speaking to the people we serve first,” Mr. Carney said.
“Three hundred thousands people read the Financial Times; there are 30 million Facebook users in the U.K.”
Ms. Yellen noted that conflicting messages by different Fed policy makers risked confusing the public.
Fed governors talk on an almost daily basis, Mr. Kuroda speaks frequently and some of the ECB’s 25 rate-setters appear to live a life of their own, sometimes giving speeches at odds with the ECB’s main policy lines.
A survey by the Brookings Institute think tank found that twothirds of Fed watchers wanted governors to speak less frequently and more than half wanted Ms. Yellen to speak more instead, to streamline and focus the message.
European Central Bank President Mario Draghi and Bank of England Governor Mark Carney attend the ECB’s Central Bank Communications Conference in Frankfurt, Germany, on Tuesday.