Central Banks

Is the Fed losing its title as best communicator?

The Federal Reserve building in Washington.
Gary Cameron | Reuters

The Federal Reserve remains the major central bank with the best communication practices, a new survey showed, but a detailed look at the results signals headwinds.

The Bank of England ranked second in Barclays' fourth 'Survey of Central Bank Communication', followed by the Bank of Japan and the European Central Bank, respectively. Each maintained its position from the 2013 survey.

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While the Fed has topped the survey since the first edition in 2007, the U.S. central bank's overall score declined for the second straight reading, falling below the 7 level for the first time due to lower scores for communication with the public. The rating for communication with the public was 5.9, well below the 7.2 scored for its communication with financial markets.

"Home bias" also weighed on the Fed's overall score, with North America-based participants making much harsher assessments of the Fed compared with foreign respondents. In 2013 there was little difference between the groups.

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Apart from grading individual central banks, the survey also aims to discover which types of communications are important.

Policy meeting minutes and press conferences were voted the most valuable channels of central bank communication. But fewer than half of the survey participants felt publishing individual voting records is essential or important, while majority called conditional interest rate projections "distracting."

BOJ catching up

The Bank of Japan (BOJ) was the only major central bank that saw its numbers improve or hold steady in every category.

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"The slight improvement in the BoJ's overall score was driven by an improvement in assessment of foreign respondents (to 6.0 from 5.9), whereas domestic respondents were unchanged at 5.8," Barclays analysts said.

"While the 'domestic versus foreign' dynamics driving recent changes in the scores of the BoJ and the Fed differ, one feature they have in common is that their respective domestic respondents grade their central bank more harshly than foreign respondents," they said.

New entrants

Barclays also expanded the survey to include the central banks of Australia, Brazil, China, India, Indonesia, Mexico, Russia, South Africa, South Korea and Turkey. However, this group was ranked separately from the principal four banks due to the smaller sample size of responses received.

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In the new group, the Reserve Bank of Australia ranked first with 70 percent of respondents saying the bank did "exceptionally well" or "well" on conveying its objectives, predictability, and credibility. The Reserve Bank of India ranked second while the Central Bank of the Republic of Turkey was the worst performer.