"New Federal Reserve News Agency": Internal Dispute Over Communication Strategy at the Fed, How Far Can Waller's 'Silence Strategy' Go?

Internal divisions have emerged within the Federal Reserve regarding communication strategies, with Waller's "less talk" approach facing resistance from colleagues.

On October 27, Nick Timiraos of the "New Federal Reserve News Agency" pointed out that Fed Chair Waller's push for a new communication style of "silence is virtue" has failed to persuade the majority of his colleagues to follow suit, resulting in the committee sending out noisy and scattered signals to the public, causing market expectations for an interest rate hike in October to plummet from 70% to 15% in just a month.

The article notes that between the end of the last policy meeting and the start of the quiet period for this week's meeting, 16 Fed officials whose terms have lasted over a year collectively delivered no fewer than 59 speeches, interviews, and public statements, roughly equivalent to about 54 during the same period last year.

This figure indicates that despite Waller's deliberate reduction of his own speaking since taking office in May, other officials have filled the void, each expressing their own views.

The direct consequence of this division is clearly reflected in the market. After the Fed raised interest rates last month, the market inferred a higher likelihood of continued rate hikes from Waller's press conference remarks; subsequently, two vice chairs spoke up, suggesting they were not in a hurry to act, leading to a significant drop in the probability of an October rate hike.

Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Company, stated:

"If Waller doesn't speak, others will fill that void."

Dispute Over Communication Strategy: Should the Market Be Informed of the "Reaction Function"?

The essence of this debate is not whether to restore a commitment-based forward guidance—almost no officials wish to return to the overly explicit interest rate commitments of pre-2021, which were deemed to have delayed the Fed's response to inflation.

The article points out that the core disagreement lies in whether officials should still explain to the public how they will respond to economic changes.

Waller's position is clear. He believes that continuously narrating the policy outlook will lock officials into their own predictions while obscuring the signals that the market can convey to the Fed. He stated in Bangkok this month:

"I do not intend to say what I might do at the remaining meetings this year; this is a new chapter for the Fed, and we are no longer doing that."

Richmond Fed President Tom Barkin, who supports this position, also told reporters that he is "very pleased that this seems to be becoming institutional practice." Barkin consistently discusses economic conditions but rarely comments on specific meetings.

Opposing Voices: Not Explaining the Framework Only Creates "Noise"

However, several officials have publicly defended the need for more thorough communication.

Cleveland Fed President Beth Hammack stated in a speech this month that if households or businesses borrow under a misjudgment of policy direction, the costs could be very high.

In an interview, she emphasized that clarifying her own thinking framework does not equate to making a commitment:

"What they hear is not a commitment because I have not made a commitment; I am explaining a framework."

St. Louis Fed President Alberto Musalem directly refuted the logic that "less talk allows the market to focus on data" during a speech in London, stating that a central bank that keeps its framework to itself "does not allow the market to focus on data; speculation will only create noise."

He added:

"The choice facing the central bank is not between noisy over-commitment and silence but between letting the public guess and proactively informing them."

Both Hammack and Musalem, who took their current positions in 2024, come from financial backgrounds and have consistently been representative voices advocating for further rate hikes this year.

"Experiment" Faces Reality Check, Former Officials Issue Warnings

This communication experiment quickly faced a pressure test after last month's rate hike.

Nick Timiraos noted that the market inferred a high probability of consecutive rate hikes in October from Waller's statements and economic data; subsequently, the vice chairs spoke up to correct this, suggesting they were not in a hurry to act again, leading to a reversal in market expectations.

Fed Governor Christopher Waller described this episode as highlighting the limitations of significantly compressing forward guidance, stating that this move is akin to "throwing out the baby with the bathwater," and bluntly remarked:

"I can't think of anything that happened that week that resembled forward guidance more."

Former Fed Vice Chair Donald Kohn stated that before sending such a strong signal to the market, he would have previously shared his speech content with then-Chairs Greenspan or Bernanke for their input.

He noted that neither had ever expressed disagreement. Kohn said:

"Current events indicate that at least some committee members are uncomfortable with such a lack of forward guidance because the market is moving in the direction the committee hopes to guide it before they do."

Lack of Consensus Among Committee Members, Chaos May Continue

Complicating this situation further is that current officials not only have differing views on economic conditions but also have failed to form a unified narrative on policy paths.

The article points out that some officials believe monetary policy is clearly too loose; others view this round of rate hikes more as an insurance response to the risk of entrenched price expectations from years of high inflation.

Jonathan Pingle, chief U.S. economist at UBS, stated that under normal circumstances, the chair's remarks can provide a common language for other officials to reference, and having the chair speak on behalf of the committee "can bring some coherence, which I believe is currently lacking."

Former Fed economist Claudia Sahm summarized the current situation as "the worst of all possible outcomes." She said:

"No one can force him to speak for the committee, and frankly, he cannot force other committee members to be silent."

Currently, a working group composed of external experts is drafting recommendations on the Fed's communication methods, expected to be submitted by the end of the year. Waller stated that any adjustments must be decided by the entire committee.

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