The Market Isn't Buying the Fed's Message

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MarketWatch First Take

Nov. 23, 2010, 3:45 p.m. EST

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WASHINGTON (MarketWatch) "� It's puzzling why the Federal Reserve thinks it's having trouble communicating.

Minutes from the Federal Open Market Committee show, by one count, five references to communication, with the central bank even weighing periodic press conferences by Federal Reserve Chairman Ben Bernanke. See story on FOMC minutes.

The markets, though, perfectly well understand what the Fed is saying. Who, for instance, was caught off guard by the Fed's decision at the beginning of November to buy $600 billion worth of bonds?

This week's look inside the big brokerages, including a Merrill Lynch webcast, new study and adviser production, with Annie Gasparro, Broker's World columnist for Dow Jones.

Sure, there were some minor surprises, like the relatively small amount the central bank is snapping up of 30-year bonds. The size of the bond buys, $600 billion, was slightly bigger than some had thought; the time period a bit longer.

But basically, the market had priced in the purchases fairly well, and for good reason. Including the well-publicized speech in Jackson Hole, Wyo., Bernanke gave seven speeches over just more than two months, most of which discussed the merits of bond purchases.

And not just Bernanke "� several of those who got to vote on the bond purchase plan, as well as others who will get their chance next year to do, opined. St. Louis Fed President James Bullard was on the air or in print seemingly every other day, and a range of hawks and doves dropped their messages onto the market.

No, the issue isn't how the central bank is communicating; to its credit, in fact, the Bernanke era has been an incredibly lucid one in comparison to his predecessor, Alan Greenspan, who delighted in confusing his audience.

The issue the Fed is having is that not everyone is buying its message.

Some, to be fair, do, largely in the bond market. The gold and currency market, by contrast, clearly don't. The stock market isn't sure. The minutes reveal that even some insiders at the Fed have their doubts.

Reasonable people, the Fed should realize, can disagree. Better for the central bank to focus on what it's doing, rather than worry about describing it.

"� Steve Goldstein, Washington bureau chief

Arrest of "?network expert' Don Chu offers more evidence of where federal investigators are taking their insider-trading probe.

3:11 p.m. Nov. 24, 2010

The FED is not having a problem with communications; it is having a problem of being believed. Until it tries something that works (improves, not staying approximately the same or actually getting worse), its track record is its biggest detractor to anything that it might say."

- Offoz | 4:07 p.m. Nov. 23, 2010

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