As a former Federal Reserve Chairman, Alan Greenspan once advised a colleague on the Monetary Policy Committee not to speak at his alma mater and on television. Greenspan believed that economists’ words were overrated and that the power of communication was crucial in managing the economy. He rejected the proposal to adopt an inflation targeting scheme, which was based on accommodating interest rates according to objectives.
Currently, Javier Milei’s government is facing a similar dilemma as they have based their stabilization plan on a fiscal announcement but have taken actions that contradict their campaign speech. Their explanations for reaching their objectives are not convincing, leading to confusion and uncertainty in the market.
In the US, Jerome Powell has given an interview clarifying that the Federal Reserve would not lower rates in March, contradicting market expectations and demonstrating the need for clear communication between policymakers and the market. In Argentina, economic officials are following Greenspan’s rule of “going but not saying anything” in their public appearances, leading to uncertainty and speculation in the market.
Greenspan’s story serves as a cautionary tale for policymakers about the power of communication and clarity in their public statements. Clear communication between policymakers and investors, companies, and savers is essential for maintaining stability in the economy.
In conclusion, policymakers should learn from Greenspan’s experience and understand that clear communication is key when it comes to managing the economy. They must be transparent with their public statements and avoid going silent when faced with difficult decisions. Failure to do so can lead to confusion, uncertainty, and instability in financial markets.