Cen­tral bankers vow to guide in­vestors

The Globe and Mail (Prairie Edition) - - INTERNATIONAL - BALAZS KORANYI FRANCESCO CANEPA FRANK­FURT

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.

KAI PFAFFENBACH/REUTERS

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.

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