Musalem Warns Against Overly Reserved US Central Bank Communications Strategy

St. Louis Federal Reserve President Alberto Musalem has warned that if the US central bank pulls back too far on its communications, it could lead to higher and more volatile interest rates and inflation.

Musalem made his comments in a speech at the London School of Economics event, where he emphasized the importance of clear communication from the Fed. He noted that while the Fed should not make specific promises about interest rates, which can create their own problems, it also should not exit the conversation altogether.

According to Musalem, 'a predictable, explained framework is not a constraint on a central bank.' It's rather what makes an institution run by unelected officials democratically legitimate. He also stated that 'the communications choice before us is not between noisy overpromising and stoic silence. It is between leaving the public to guess how the central bank thinks and telling them.'

Musalem's comments come as Fed Chairman Kevin Warsh has set up a task force to review the Fed's communication strategy, which he feels has become too freewheeling.