Federal Reserve Governor Christopher Waller emphasized the need for clear and consistent policy reaction rules, warning that without them the market cannot make accurate predictions. While acknowledging potential flaws in quantifying the reaction function, he stressed its qualitative importance. Waller also expressed differing views from Fed Chairman Kevin Warsh on the perfection of the reaction function. On transparency, he criticized the "never explain" approach as outdated and advocated for appropriately revealing future policy direction. Waller noted strong internal disagreements on communication issues and uncertainty about the communication working group's outcomes. He opposed any suggestions that would make reserves scarce again, and urged the data working group to use verifiable data to maintain trust. He also suggested that the inflation working group could be most beneficial for the Federal Open Market Committee (FOMC).
Federal Reserve Governor Christopher Waller said the Fed must establish clear and consistent policy reaction rules, otherwise the market cannot make predictions. He acknowledged that quantifying the reaction function may have flaws, but it is crucial from a qualitative perspective. Waller noted that his views on the perfection of the reaction function are distinctly different from those of Fed Chairman Kevin Warsh.
On transparency, Waller stated that surprising the market brings no benefit. He criticized the "never explain" approach as an outdated model, saying it is not a good model, and that appropriately revealing some future policy direction would be better. Waller revealed that there are very strong disagreements within the Fed on communication issues, and opposition to scenario analysis was intense last year. He said it is currently unclear what the communication working group can achieve.
Regarding the balance sheet working group, Waller said he will oppose any suggestions that would lead reserves back to a scarce state. For the data working group, he emphasized the need to be wary of trust issues and to use verifiable data. Waller also noted that the inflation working group might be most helpful to the Federal Open Market Committee (FOMC). (CLS)
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