New York Fed President William Dudley has acknowledged the Fed has not communicated well recently. Still, this prominent member of the Federal Reserve's rate-setting committee downplayed the differences in opinion among U.S. policymakers. He said the economic outlook was unclear and it was natural to come to different conclusions.
"At the end of the day people are exaggerating" the divisions, Dudley said in response to a question after a panel presentation in Washington. "We are all pretty much on the same page."
The mixed messages from the Fed in recent weeks have led investors and economists to wonder what it will take to get the Fed to lift interest rates from historic lows.
"No one knows what you are doing," said John Taylor, a prominent economist on monetary theory who was on the panel with Dudley. "You can be out there talking all the time and thinking you're being transparent and just confusing things."
So, is the Fed suffering from what economist Alan Blinder dubbed "a cacophony problem," when a monetary policy committee speaks with too many disparate voices? Even if, then clearly the solution is not silence. The right solution is honest and clear central bank talk about prospective monetary policy. As Blinder rightly points out:
"If a cacophony problem arises from the fact that an MPC has too many uncoordinated and inconsistent voices that confuse rather than enlighten the public, the appropriate remedy is greater clarity, not silence."