I just don’t understand the Federal Reserve Presidents and many of their speeches and comments. Every year for the past 5 years the Federal Reserve has been able to see what happens when the various Presidents make speeches or off the cuff remarks that cast doubt on the explained policy or general plan. Last month outgoing Fed Chairman Ben Bernanke laid out a very detailed analysis of what the Federal Reserve would be doing to scale back and eventually eliminate its last Quantitative Easing program. That calmed markets and investors were content knowing there was actually “a plan”. Having a plan is important.

A Game Plan

The Federal Reserve is definitely not the best when it comes to laying out detailed information for citizens. So many things are constantly left “up in the air”, that one has to wonder if there really is any kind of “game plan” at all. Over the course of the last 5 years many times we have been left wondering if they are simply “flying by the seat of their pants”. That seemed to culminate this past month with Bernanke laying out how the Federal Reserve would slowly wind down Quantitative Easing along with not increasing interest rates until at least 2016.

Ending Quantitative Easing In Just One Year?

Now today, Jan 7 2014, San Francisco Fed President, John Williams indicated in a speech, that the bond purchases will probably be eliminated this year assuming the economy improves as they are expecting.  Why even make such a comment? Why once again place uncertainty back into the equation. He went on to say that ending Quantitative Easing “will be an important first step towards eventually bringing monetary policy back to a more normal setting.” These were his words from a speech to a bankers’ convention in Phoenix.

At least he did indicate that the Fed was not near hiking interest rates. Williams discussed what he referred to as “newfound momentum” in the economy and indicated his belief the economy will grow 3% this year and 3% next. He felt inflation seemed to have “finally bottomed out” and should begin to slowly creep back up.

Casting Doubt

The problem with these types of comments is they bring an unknown entity back into not just the stock market or bond market, but the economy as a whole. Bernanke’s plan was a gradual reduction along with monitoring long-term unemployment gains and inflation expectations. This did not set a time frame for the Quantitative Easing program to end, nor at what rate the reductions would be. It was a plan to slowly scale back and make sure of the results. Whether Quantitative Easing can be ended this year is not as important as making sure the economy is on a firm footing and both unemployment and inflation are within acceptable ranges before ending Quantitative Easing. These constant speeches that cast doubt over what was thought to be a clear plan on the part of the Federal Reserve do nothing to assist the economy and certainly do not help the decision-making process that businesses are continually involved in.

The Constant Unknown

Perhaps part of the reason the economy has taken so long to heal is that many businesses are not sure what the next day might bring financially. It’s hard to put together a financial budget and do projections when you never know what the real plan is from the Federal Reserve.

Be Consistent

I preach about the importance of having a plan and remaining consistent whenever I talk about investing. The Federal Reserve would do well to also stick to a plan and keep the speeches, comments and off the cuff remarks focused to the same policy. Maybe hiring a PR spokesperson would be a good move for the Federal Reserve. Then the comments might be standard and follow the “game plan”.  Businesses tend to run well when everyone is pulling in the same direction. That might be something worthy of consideration for the Federal Reserve.

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