As I read the Fed's monetary policy seconds after its release, something struck me as different. I couldn't quite put my finger on it for a few minutes. And then it hit me: unlike other statements, this was so predictable, maybe the most mature, policy statement to come from the Bernanke Fed.
For a market pining for the days of the sure-handed leadership of the Greenspan era, this could be welcome news… if it continues.
There's nothing easier to read than something you've read before. Of the 20 or so FOMC statements I've reported since Fed Chairman Ben Bernanke took over, this was the easiest to read, the least random in its wording. The reason: if you followed what Bernanke has said over the past several weeks, much of it has been said before either in the same words or nearly so.
Before this, Bernanke seemed to be casting about in statements to find a different way from his predecessor to convey policy. He's been trying to throw off the straight jacket of predictability in exchange for up-to-the-minute honesty and creativity. But Bernanke looks have taken a page out of the Greenspan playbook here: tell markets what you're going to do and then deliver your committee on that promise.. And do it with confidence, not uncertainty.
From the first sentence of the announcement (heralding the 50 basis point cut), to the first reason given for the cut (the stress in financial markets) to the final one (that the Fed will act in a timely manner) all of it was predictable in the days before the meeting.
The gap between the Fed and markets has troubled me for a long time. Why should the two-year note be down at 2.25% and the Fed funds rate (until the emergency cut 10 days ago) two percentage points higher at 4.25%. Is that Fed really that much smarter than markets?
Today, the Fed and markets are much closer. The arguments are now at the margin, rather than in the substance of the rate debate. Before, markets and the Fed were in different dimensions. Now, they are at least in the same universe.
It is ultimately important for the Fed to get policy right. But it seems like Bernanke is learning that it also matters how you get it right. To engineer 125 basis points of cut with only one dissent shows emerging leadership from Bernanke. Time will tell if Bernanke and the Fed got the policy right. But right now, he gets some important style points that should be welcome news to markets who have wondered about whether the right guy is in the job at the head of the nation’s central bank.