Fed Governor Waller: Need Clear Reaction Function Rules; Data Working Group Must Beware of Trust Issues

Odaily News Fed Governor Waller stated that the Federal Reserve must establish clear and consistent policy reaction function rules, otherwise markets cannot make predictions. He noted that quantifying the reaction function may have flaws, but from a qualitative perspective, it is crucial. His views on the perfection of the reaction function differ sharply from those of Fed Chairman Warsh.

On the issue of Fed transparency, Waller said there is no benefit in surprising the market. He criticized the "never explain" approach as an outdated model and not a good one, adding that appropriately signaling future policy direction would be better.

Waller also noted strong internal disagreements at the Fed over communication issues, with significant opposition to scenario analysis last year. It remains uncertain what the communication working group can achieve. Regarding discussions in the balance sheet working group, he will oppose any proposals that would push reserves back into scarcity. As for the data working group, he emphasized the need to be wary of trust issues and to use data that people can verify. He added that the inflation working group may be the most helpful to the Federal Open Market Committee (FOMC). (CLS)