Kevin Warsh's recent intervention on central bank communication lands on a real problem. Policymakers now say a great deal, across speeches, minutes, forecasts and press conferences, and the sheer volume has started to work against the clarity it was meant to create.
The case for transparency was never in doubt. Markets price the path of policy, and a central bank that explains its reasoning helps that pricing settle closer to where the data point. The question Warsh raises is different. It is whether more communication, from more officials, on more occasions, actually improves the signal, or whether it simply adds noise that traders then have to filter out.
Figure 1: Public communications per meeting cycle have roughly doubled since 2010
Source: Capital Economics, central bank calendars. Speeches, testimony and published minutes, indexed.
The evidence from the past two cycles is that markets respond to a small number of high-signal events and largely discount the rest. A well-drafted statement, a clear set of projections and one considered press conference move pricing. The tenth speech of the month rarely does, and when officials disagree in public the effect can be to widen the range of outcomes the market has to hold.
Fewer voices, saying more considered things less often, would raise the signal without losing the transparency.
That is the trade Warsh is pointing to. It is not a call for secrecy. It is a call to treat communication as a scarce resource, spent where it does the most work, rather than a volume target to be met. For the economies we cover, the banks that already operate this way tend to see calmer reactions to their decisions, because the market has fewer conflicting inputs to reconcile.
For traders and portfolio managers the practical point is about where to spend attention. The events worth clearing the desk for are the statement, the projections and the chair's press conference. The rest is context, useful for colour but rarely decisive for pricing.
Figure 2: Market reaction concentrates on decision days, not the speeches around them
Source: Capital Economics. Absolute two-year yield move on the day, by event type.
Our read is that the direction of travel favours fewer, clearer communications, and that the banks which get there first will find their guidance carries further. We set out how this shapes our rate calls across the major economies in the accompanying forecast set.
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