Letter: Central banker chattiness is a flawed PR strategy

Published in the Financial Times.

Gary Silverman observes that “US central bankers . . . have become relentlessly chatty, appearing on stage and screen” in contrast to “opaqueness in the old days” (“The Fed transforms into reality TV show”, On Wall Street, FT Weekend, April 9).

The former opacity had a huge advantage for central bankers: it hid the fact that they did not know what was going to happen or what they would be doing about it.

Transparency has a corresponding big disadvantage. It makes obvious to all that they have no more knowledge of the future than anybody else.

They cannot escape this problem because the financial and economic future always displays what economists call the “Knightian uncertainty” after Frank Knight’s book Risk, Uncertainty and Profit (1921) and his theory that the future is not only unknown but unknowable.

Given this fact, the Federal Reserve and all central bankers have a public relations problem. Opacity looks like a superior strategy to chattiness.