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The Center, The Federal Reserve Trader is looking ahead to the FED minutes this week and a great decision at the end of the month. The former New York Fed president built out le calling for the Central Bank to improve its communication, writing the better the quality of the Fed's communication, the more accurately market participants can assess how policy is likely to change. This tightens the linkage between monetary policy actions and financial conditions, which increases the speed and precision of monetary policy transmission. Bill Johndice now for more. Bill, Welcome to the show, sir, and a very happy new year to you. Where do you think the Fed is struggling to communicate right now? On what issue? Specifically?

The Center, The Federal Reserve Trader is looking ahead to the FED minutes this week and a great decision at the end of the month. The former New York Fed president built out le calling for the Central Bank to improve its communication, writing the better the quality of the Fed's communication, the more accurately market participants can assess how policy is likely to change. This tightens the linkage between monetary policy actions and financial conditions, which increases the speed and precision of monetary policy transmission. Bill Johndice now for more. Bill, Welcome to the show, sir, and a very happy new year to you. Where do you think the Fed is struggling to communicate right now? On what issue? Specifically?

I think the sorary econotic projections last month was confusing the people because there was a pretty big up up through revision to the inflation estimates for twenty twenty five, yet it was hard for Paul to explain the sources of that. He noted that the participants and operate from a common set of assumptions. Some are assuming effects of Trump tariff and deportation policies, some weren't, and some didn't say whether they were or weren't, So each of the projections has a different set of assumptions embedded in it, which makes it very hard to anticipate what the Fed thinks is going to happen and how they're going to react to it.

I think the sorary econotic projections last month was confusing the people because there was a pretty big up up through revision to the inflation estimates for twenty twenty five, yet it was hard for Paul to explain the sources of that. He noted that the participants and operate from a common set of assumptions. Some are assuming effects of Trump tariff and deportation policies, some weren't, and some didn't say whether they were or weren't, So each of the projections has a different set of assumptions embedded in it, which makes it very hard to anticipate what the Fed thinks is going to happen and how they're going to react to it.

Bill is the issue for the FED right now communication or just not necessarily understanding which direction of this economy is going to go.

Bill is the issue for the FED right now communication or just not necessarily understanding which direction of this economy is going to go.

In both, I think the problem is they're having trouble communicating how they're likely to react to the Trump policies.

In both, I think the problem is they're having trouble communicating how they're likely to react to the Trump policies.

Obviously, if terroists are broad based, that is one effect.

Obviously, if terroists are broad based, that is one effect.

If they're much more targeted, as the Watching Post report suggest, that has a different implication.

If they're much more targeted, as the Watching Post report suggest, that has a different implication.

So it's a lot of the I'm certainly about what Trump policies are going to be, and of.

So it's a lot of the I'm certainly about what Trump policies are going to be, and of.

Course the Fed is uncertain about how the economy itself is going to perform. A key issue for the Fed in terms of the economy is the labor market going to continue to weaken or not.

Course the Fed is uncertain about how the economy itself is going to perform. A key issue for the Fed in terms of the economy is the labor market going to continue to weaken or not.

Had been very.

Had been very.

Clear that he thinks the labor market is still weakening and he doesn't want it to waken any further.

Clear that he thinks the labor market is still weakening and he doesn't want it to waken any further.

So that's why Friday's paydroll and ployer report is so important.

So that's why Friday's paydroll and ployer report is so important.

When you talk about a reaction function. This has been one of the big quag buyers for people. What is sort of the scenario analysis that the FED is doing and how they're going to respond to it. Do you think that they have that scenario analysis or do you think that increasingly, by default, it is becoming an increasingly data point dependent federal reserve.

When you talk about a reaction function. This has been one of the big quag buyers for people. What is sort of the scenario analysis that the FED is doing and how they're going to respond to it. Do you think that they have that scenario analysis or do you think that increasingly, by default, it is becoming an increasingly data point dependent federal reserve.

Well, there's definitely a scenario analysis that takes place before each meeting.

Well, there's definitely a scenario analysis that takes place before each meeting.

The staff prepares.

The staff prepares.

What's so called tealbook, and in the Tealbook there's a baseline forecast, but there's also these alternative simulations which suggests how the economy might evolve if things happen differently.

What's so called tealbook, and in the Tealbook there's a baseline forecast, but there's also these alternative simulations which suggests how the economy might evolve if things happen differently.

I think that's another problem with the Summary of Economic Projections.

I think that's another problem with the Summary of Economic Projections.

It's a modal forecast and it doesn't talk about at all about what's going to happen if things turn out differently than what FED officials expect. So I think one thing the FED could do is actually do what a lot of foreign central banks do is actually have a consensus forecast, difficult to do with a committee of nineteen people spread all over the country. You could actually start to publish the staff forecast. There is a staff forecast available before every meeting, and if you put that out there, you have a better sense of what the baseline assumptions of the FED are.

It's a modal forecast and it doesn't talk about at all about what's going to happen if things turn out differently than what FED officials expect. So I think one thing the FED could do is actually do what a lot of foreign central banks do is actually have a consensus forecast, difficult to do with a committee of nineteen people spread all over the country. You could actually start to publish the staff forecast. There is a staff forecast available before every meeting, and if you put that out there, you have a better sense of what the baseline assumptions of the FED are.

But Bill isn't one of the issues that Comm's problems is because they don't want to or can't be seen talking about policy. Do you just think the FED should be more open about policy all of the members?

But Bill isn't one of the issues that Comm's problems is because they don't want to or can't be seen talking about policy. Do you just think the FED should be more open about policy all of the members?

Well, clearly what happens on tiarists and deportation is going to have a big, big effect on the Commy in twenty twenty twenty five, So I don't think you can avoid thinking about that in terms of making your economic forecast. I think the FED is reluctant to talk about it because he doesn't want to get self engaged into this political discussion, and I think they're worried that will politicize the FED, So they're trying to think about it with how talking about it at the same time.

Well, clearly what happens on tiarists and deportation is going to have a big, big effect on the Commy in twenty twenty twenty five, So I don't think you can avoid thinking about that in terms of making your economic forecast. I think the FED is reluctant to talk about it because he doesn't want to get self engaged into this political discussion, and I think they're worried that will politicize the FED, So they're trying to think about it with how talking about it at the same time.

Is your main concern right now with the FED communications or would you do anything differently on policy?

Is your main concern right now with the FED communications or would you do anything differently on policy?

I think they are in a pretty good place right now. I think that they understand that the Commy is doing okay. Inflation is a little bit sticky, so it makes sense to wait. They also understand that there's a lot of uncertainty about what policy is going to be forthcoming, and Paul said when things are usurned, you should slow down.

I think they are in a pretty good place right now. I think that they understand that the Commy is doing okay. Inflation is a little bit sticky, so it makes sense to wait. They also understand that there's a lot of uncertainty about what policy is going to be forthcoming, and Paul said when things are usurned, you should slow down.

So I think that all makes a lot of sense. I think the big disconnect I think between.

So I think that all makes a lot of sense. I think the big disconnect I think between.

Markets and the FED is where is the FED heading over the medium the longer term. The FED says we're heading to three percent federal funds rate. The market says we're heading to something more like a four percent federal fund rates.

Markets and the FED is where is the FED heading over the medium the longer term. The FED says we're heading to three percent federal funds rate. The market says we're heading to something more like a four percent federal fund rates.

So there's a.

So there's a.

Pretty big gap about what is a neutral monitary policy. FED thinks the neutral monitary policy is quite a bit easier than we are today. The market thinks that the neutral monitary policy is slightly easier than where we are today.

Pretty big gap about what is a neutral monitary policy. FED thinks the neutral monitary policy is quite a bit easier than we are today. The market thinks that the neutral monitary policy is slightly easier than where we are today.

But what did you do with your own forecast when you had Trump coming in in Volume one? How did you change things? So do you anticipate the changes to policy beforehand or react once it was introduced.

But what did you do with your own forecast when you had Trump coming in in Volume one? How did you change things? So do you anticipate the changes to policy beforehand or react once it was introduced.

I think I thought.

I think I thought.

That there was more risk in the forecast, So I think the biggest change for me was to talk about risk and uncertainty going up. And I think that's what's happened to I mean, I think we the big transition from Biden to Trump is under Biden, we sort of knew exactly what the policies were, and in fact, over the last two years there hasn't really been much in terms of new policy initiatives. Now we're going into the Trump era, when you know there's gonna be a lot of changes in policy and yet and.

That there was more risk in the forecast, So I think the biggest change for me was to talk about risk and uncertainty going up. And I think that's what's happened to I mean, I think we the big transition from Biden to Trump is under Biden, we sort of knew exactly what the policies were, and in fact, over the last two years there hasn't really been much in terms of new policy initiatives. Now we're going into the Trump era, when you know there's gonna be a lot of changes in policy and yet and.

We don't know yet they're what they're going to be.

We don't know yet they're what they're going to be.

So I think we're going from a period of low uncertainty to much higher uncertainty.

So I think we're going from a period of low uncertainty to much higher uncertainty.

That's what's got to get priced into markets.

That's what's got to get priced into markets.

That's one reason why I think the bond market has done poorly over the last few months.

That's one reason why I think the bond market has done poorly over the last few months.

Oh, I appreciate your time, as always bought down to the former New York Fed president. Looking at to twenty twenty five and beyond,

Oh, I appreciate your time, as always bought down to the former New York Fed president. Looking at to twenty twenty five and beyond,