Kansas City Federal Reserve President Esther George was the only FOMC member against the central bank’s Wednesday decision to not taper its asset purchase program known as quantitative easing.
In a speech this afternoon, George blasted the decision, saying it “created confusion, created a disconnect,” according to Bloomberg.
George said that reducing QE would have allowed markets to adjust gradually.
Most economists had expected the Fed to begin to taper its $US85-billion-a-month bond purchase program by at least $US10 billion. Markets were already prepared for the adjustment, according to George.
In June, Chairman Bernanke communicated the Fed would look to taper if certain economic indicators looked more favourable.
George said she has seen “substantial” progress in the U.S. jobs market with “sufficiently positive” data, a view clearly not all on the FOMC share.
But by hinting at a taper and then walking it back unexpectedly, the Fed’s credibility is at risk, according to George.
Bernanke’s Fed has made transparency a chief concern, but the central bank needs credibility in order for markets to trust its forward guidance on the future path of short-term interest rates, George noted. Hints without tangible follow through just won’t do.