While Trump puts pressure on Powell, Wall Street gives a pass to the Fed

SAN FRANCISCO / WASHINGTON (Reuters) – As President Donald Trump continues to attack the Federal Reserve's policies, Wall Street is cautiously adopting them, giving a positive note to the Fed's communication since its January pbadage to a "patient" approach to the rate. hikes.

The New York Federal Reserve examines the major securities firms on Wall Street with whom it trades and asks them how it would evaluate the Fed's communication with the markets and the public since the last survey. The central bank asked for scores on a scale of one, "inefficient," to five, "effective."

About two-thirds of Wall Street companies, called core traders, rated the Fed as four or five (more effective) in the latest poll released on Thursday, while 22 percent said the Fed had one or two effective ones. The others were neutral.

Composite 3.4 of these ratings is lower than President Jerome Powell's average score of 3.6 during his tenure, but higher than the average of 3.2 obtained by each of his two most recent predecessors, Janet Yellen and Ben Bernanke, a Reuters badysis of all the surveys available from the New York Fed. shows on the site. (For a graph, see tmsnrt.rs/2XawZ6T).

A separate survey conducted by the New York Fed among market players and including large investors revealed that 57% gave the two best efficiency scores, while one quarter gave the two lowest scores. Both polls took place from March 6 to 11.

Ratings are important because they help the Fed badess how well its message reaches financial markets. The Fed relies on its credibility with investors to weigh on the economy.

After raising rates four times in 2018, the majority of Fed policymakers, at their last meeting in March, expected to keep rates within their current range of 2.25-2.50% for rest of the year due to uncertainty regarding the slowdown in the global economy. .

A well-considered message that rates are likely to remain unchanged for some time can help ease financial conditions when central banks believe these conditions are too restrictive. But if markets find the Fed's message confusing or uncredible, they risk collapsing or collapsing to undermine the Fed's impact. This was the case at the end of last year, when markets fluctuated sharply in response to Powell's statements widely viewed by investors as communication errors.

At the same time, President Trump publicly criticized the central bank's past rate hikes for thwarting economic growth and also urged policy makers to change course.

Lewis Alexander, the chief economist at Nomura Securities, said the Fed had "much upset" its policy from December to March and that calibrate its language so that everyone could understand that it would not be easy.

"Powell's stated intention to use clear language that I very much approve of; nothing in this world can be explained in detail, but simply, "he said.

The Fed is increasingly interested in its communication capacity. Powell has tasked a small group of policymakers to find ways to improve it, revealed the minutes of last March's Fed meeting. This reflects the fear that markets view the Fed's outlook on rates and the economy as promises rather than optimal forecasts.

The emphasis on communication is also evident in Powell's decision this year to hold press conferences after each Fed meeting, double the previous frequency. Even the Fed's inclusion of the New York question on the effectiveness of communications in the March survey may reflect a heightened interest since it only asked this question once a quarter.

Ratings generally increase when the Fed makes the forecasts and fall when they surprise, as shown by the badysis of Reuters ratings over the past nine years. The New York Fed has not made its investigations available before 2011.

Powell and other Fed policy makers have tried to dispel any idea that this could hurt the economy by being too aggressive. Shares surged after Powell announced that he would be ready to take a slow approach in case of rising rates.

In October 2015, as Fed Yellen went through the difficult transition of a year of extremely low rates to a cycle of rate hikes, it got the worst rating of its mandate: an average of 2.27 out of 5.

Fed Bernanke did worse by scoring 2.1 at the end of 2013, when it did not start reducing Fed bond purchases in September as expected by the markets. His notes then recovered when the Fed limited its controversial quantitative easing program.