Nothing New

Nothing new under the sun.

That's still quite solid advice after all these years. The only thing different is the packaging or, as some might say, the cover-up techniques. By appearing more transparent, they become more opaque. No this is not about our ex-girlfriend. We're talking central banks and, in particular, the Lords of Eccles.
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If there’s a golden rule for central bankers in the 21st century, this is it: Seek clarity and avoid uncertainty. A central bank’s target should be clear. The data it uses should be known. The analysis it conducts on that data should be comprehensible. And, certainly, politics should have nothing to do with its decisions. Yet across the world, central bankers are struggling to live up to these requirements. Instead they’re undercutting their own positions by introducing quite unnecessary confusion into policymaking. – Bloomberg

We are told in this Bloomberg editorial that central bankers must be clear about their goals and objectives so markets will not be “confused.”
It sounds like this is a reasonable objective. But actually, for decades central bankers were not supposed to communicate at all. This was the approach pioneered by Norman Montagu of the Bank of England: “Never explain, never excuse.”

Here from Eustace Mullins’ “Secrets of the Federal Reserve”:
The New York Times … Oct. 17, 1928, describes the conference between the directors of the three great central banks in Europe in July, 1927, “Mr. Norman, Bank of England, Strong of the New York Federal Reserve Bank, and Dr. Hjalmar Schacht of the Reichsbank, their meeting referred to at the time as a meeting of ‘the world’s most exclusive club’. No public reports were ever made of the foreign conferences, which were wholly informal, but which covered many important questions of gold movements, the stability of world trade, and world economy.”

The meetings at which the future of the world’s economy are decided are always reported as being “wholly informal”, off the record, no reports made to the public, and on the rare occasions when outraged Congressmen summon these mystery figures to testify about their activities they merely trace the outline of steps taken, and develop no information about what was really said or decided.

At the Senate Hearings on the Federal Reserve System in 1931, H. Parker Willis, one of the authors and First Secretary of the Federal Reserve Board from 1914 until 1920, pointedly asked Governor George Harrison, Strong’s successor as Governor of the Federal Reserve Bank of New York:
“What is the relationship between the Federal Reserve Bank of New York and the money committee of the Stock Exchange?”
“There is no relationship,” Governor Harrison replied.

Of course Harrison was lying. In fact, the secrecy was meant to keep central banking out of the news as it was controversial then as now. Additionally, the central bankers of the day were concerned that some of their pronouncements would turn out to be wrong of ill-conceived, and this would diminish their credibility.

As can be seen from this Bloomberg editorial, the ideas regarding Fed communication have come full circle. Now the idea is to communicate clearly and rigorously – regarding ways central banks can create and maintain a “normal” monetary environment with “normal” (higher) interest rates.
There are two issues with this emphasis on communication. First, the initial instinct of Montagu and others may have been correct than not … from their perspective. With more communication in the modern era comes more controversy. Justifying central bank decisions is impossible because it is a form of price-fixing and because every pronouncement only reminds people that their monetary universe is run by a handful of unelected academic bureaucrats.

Second, providing a full spectrum of available information only reinforces central banks’ role as the primary mover of the larger monetary system. The more amplified central bank pronouncements become, the less investors and others will pay attention to additional non-central bank factors.
For instance, the Bank of Japan owns a tremendous amount of domestic equity. Given its dominant position, communication from the Bank of Japan becomes a significant, even urgent pronouncement. No additional information may be deemed necessary in this era of “political money” by the average investor.

More: thedailybell.com/news-analysis/central-bank-communication/