Federal Reserve Vice Chairman Stanley Fischer expressed hope Monday that the central bank won’t repeat one of the major mistakes of the Bernanke era at the Fed.
As the Fed prepares to begin shrinking its $4.5 trillion balance sheet this year, reversing its stimulus efforts undertaken in the wake of the financial crisis, it’s less likely to spook investors by surprising them with comments from Fed officials, Fischer said Monday at an event at Columbia University.
The Fed has made strides in communications since 2013, when then-chairman Ben Bernanke unexpectedly suggested at a congressional hearing that the Fed would soon scale back its bond-buying program. Bernanke’s comments caught investors off-guard and sent rates on mortgages up by more than a percentage point that summer, an event later called the “taper tantrum.”
Fischer said Monday that the Fed’s early efforts to prepare markets for its plans to reduce its bond holdings are going better, at least so far. “We appear less likely to face major market disturbances now than we did in the case of the taper tantrum,” he said in remarks prepared for Monday’s speech.
Fischer ad-libbed, however, that the Fed cannot afford to become complacent about the possibility of another miscommunication and market upheaval.
The Fed has a lot at stake. Not only could an errant comment like Bernanke’s raise costs for potential homebuyers and credit card holders throughout the economy, but the Fed is also facing scrutiny from Congress.
House Republicans have argued that the Fed’s communications are too arbitrary and unpredictable. They are expected to introduce legislation that would require the Fed to explain its strategy in terms of a rule relating its decisions to economic variables, an idea opposed by Fed officials.
