Fed Opaque Communication Style Sparks Market Cacophony Warns Goldman Sachs Economist

Goldman Sachs' top economist has warned of increased market 'cacophony' due to the Federal Reserve's new opaque communication style.

The Fed, under Chair Kevin Warsh's regime change, is withholding forward-looking guidance on monetary policy at its recent meetings. This new approach aims to remove valuable information about what markets actually think about inflation.

However, Jan Hatzius, the chief economist and head of global investment research at Goldman Sachs, sees a flaw in this reasoning. He believes that 'markets price what they think the Fed will do, not what they think the Fed should do.' This means that even if the Fed obscures its reaction function, market guesses about the Fed's next moves will become worse.

Hatzius predicts that this increased uncertainty will lead to more volatility in markets and financial conditions, which serves no constructive economic purpose. He also notes that the Fed's unofficial comments on monetary policy outside of meetings will exacerbate the situation.