What central banks may have the world over is a failure to communicate.
Officials are struggling to spell out their visions for monetary policy, often amid a chorus of competing views. Chairman Ben S. Bernanke is trying to manage expectations about when the Federal Reserve will slow asset purchases and raise interest rates. Bank of Japan Governor Haruhiko Kuroda’s reflation-push is backfiring by driving up bond yields. European Central Bank President Mario Draghi is dashing investors’ hopes he once kindled for extra stimulus.
The muddied messaging already is roiling financial markets, threatening to undermine the confidence of investors, households and consumers and so undoing efforts by central banks to strengthen their economies. The opacity puts policy makers under pressure to improve the communication techniques they’ve been using to restrain borrowing costs.
“The purpose of central-bank transparency was to give markets clarity and reduce volatility,” said Ed Yardeni, president and chief investment strategist at Yardeni Research Inc. in New York. “Instead it’s increasing volatility and been counterproductive. Clearly the back-up in bond yields and sell-off are disconcerting.”
Bernanke will get a chance to clarify the U.S. central bank’s stance on June 19 when he holds a press conference after the policy-setting Federal Open Market Committee completes a two-day meeting. Rather than focusing on when the Fed will start reducing its bond buying, Bernanke probably will stress the how and why of such a step, said Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York.