As the Federal Reserve contemplates winding down its gigantic stimulus program, former Fed Governor Randall Kroszner explains how to cut through the fog of Fedspeak to read the exit signals.
If the Fed prepares to unwind QE the probably give a fair number of signals. The impact of Fed's policies are very close related to its communication strategies to win they talk about what they're going to do is incredibly important -- it is a complex mosaic of different that speakers that'll come together to give us the painting that is being vehicles -- decision. But I think some of the pieces of mosaic fit and I'm more tightly and and others. And in particular if the chairman's remarks I would also focus on the vice chairman Janet Yellen. And the president New York -- Bill Dudley. I know people used to focus on former chairman Greenspan's briefcase or. I'm not true that was a very good predictor but it certainly made for good TV I think the chairman is just much more straightforward in his remarks in his testimony last week. I think it's -- it was very clear that he was concerned about a premature. Exit. For premature tightening of monetary policy could lead interest rates to rise temporarily. I would also carry a substantial risk of slowing -- ending the economic recovery and causing inflation to -- further. -- there have been discussions of exit back a couple of years ago wouldn't three years ago. And those turned out to being quite premature I think if you. No longer see that concerned about premature exit if that -- disappears from. His lexicon. I think that's an important step. Towards signaling that -- may be getting closer to being ready. To start to pull the possible -- it some words that might give signals that the Fed may be moving towards the exit. Would be perhaps robustness. Robustness of recovery. Second if you start hearing discussions of the sustainability. Of the recovery particularly sustainability of recovery -- the jobs. Sustainable is a very important word in the chairman's lexicon because it's not just about. Getting a little bit of a boost they wanna make sure that -- if you sustained. The president of the New York fed Bill Dudley. Recently mentioned that it might take. Three or four months worth of data to be comfortable to see whether the economy's in a sustainable recovery. And that seems right he probably wanted to see roughly six months worth of data. In order to feel that well this is not just. A little -- that will lead to a sport or slump. But something that is it is solid and sustainable. So I would think that words like robustness and sustainable -- sustainability. Would be important to precursors. Two. And reducing the asset purchases and may be the next.