Hi there,
Kevin Warsh wants the Fed to talk less. He’s already jettisoned forward guidance – signals about what the U.S. central bank might do next – and cut back the policy statement. There will be more changes. He has kicked off a new era as Fed chair with a sweeping review of how the central bank makes decisions and communicates.
Warsh’s pledge to talk less comes as many other central banks have been trying to communicate more. What central banks say can have an enormous impact on the behaviour of businesses and households. It can influence inflation expectations and increase the effectiveness of the bank’s monetary policy.
Warsh’s view is that financial markets should price securities based on their own reading of the economy rather than trying to anticipate policymakers' views of the data. He’s no fan of the Fed’s “dot plot” – which maps out policymakers’ interest rate projections and can be confused for official forward guidance when it’s just a snapshot of views at a particular moment.
Talking less, in theory, gives central bankers more flexibility - it means they are not locking themselves into a particular course of action. But the risk is that silence could lead to surprise decisions that cause volatility in financial markets. Check out this column from Mike Peacock, the former head of communications at the Bank of England, for more.
I’ve been doing a lot of talking myself recently. Taking the Econ World vodcast on the road to London for the Reuters NEXT conference. We recorded a live episode of the show on stage, digging deep on the “B-word” … Brexit. You can watch it here.
Can you believe it’s 10 years since the UK voted to leave the European Union? The actual hit to the economy from the reduction in investment, trade and productivity is debated but there’s no doubt UK Inc has suffered. Interestingly, the damage to the City, which was at the centre of plenty of doomsday predictions in the run-up to the vote, has been less catastrophic. Yes, it has lost market share in most areas of finance from stock offerings to foreign exchange trading, but employment in the City of London financial district is at an all-time high and banks are posting record profits.
Brexit has shot up the political agenda again with a leadership race to unseat Prime Minister Keir Starmer looming. The starting gun on that race will be fired if Greater Manchester Mayor Andy Burnham wins a local election, as expected, later today.
Much ink, electronic or otherwise, has been spilt on the U.S.-Iran deal. Investors will be watching closely to see if the Strait of Hormuz reopens fully for business, releasing millions of barrels of oil stranded in the Middle East Gulf. Three Saudi-flagged supertankers sailed through it after U.S. President Donald Trump signed the deal but dozens more are still stuck.
One energy shortage that has flown under the radar is the one hitting one of the world's largest exporters of oil and refined products. Russia is set to import fuel by sea this month as it seeks to manage a gasoline shortage following extensive Ukrainian drone attacks on its refineries. It’s a rare move.
For more on all the developments on global energy markets check out next week’s Reuters global energy forum with interviews with the U.S. Energy Secretary Chris Wright and Con Edison CEO Tim Cawley.
As always, I'd love to hear from you by hitting reply on this email or finding me on LinkedIn.
Carmel
