In politics, complex concepts are often oversimplified to make a point.
But the Federal Reserve plays a different kind of political game. The leaders of the powerful independent government agency, whose every moves have the power to influence world markets, often purposefully try to be a little hard to understand.
Expect new Fed Chair Janet Yellen to throw out phrases like “substantial improvement in the outlook for the labor market” and “quantitative easing” in her first press conference Wednesday when she’s explaining the agency’s monetary policy for 2014.
Wall Street will inevitably react, or overreact, to whatever she says. Investors may even be confused by it.
But there’s a method behind her madness. Yellen knows if you’re a Fed leader, sometimes being transparent can backfire.
Take Former Fed Chair Ben Bernanke, who tried to spell out in June 2013 almost exactly when the Fed would ease off its stimulus of keeping interest rates near zero percent.
Worried they could see the light at the end of the tunnel, investors panicked and the market tanked.
Today, Fed watchers believe the agency is regretting spelling out its plans so clearly. So it’s possible this week we’ll hear press conferences full of more mumbo-jumbo economic terms that confuse even economic experts, says The Washington Post’s Ylan Mui.
And while markets are fretting over every phrase, and yes, may take a short-term tumble, know that for the foreseeable future, anything the Fed says is likely to keep your interest rates low.