Economists and market analysts have blasted Federal Reserve chief Ben Bernanke after the Fed stunned markets with its unexpected decision to not cut its stimulus.
While the markets fumed, another key policy maker – the International Monetary Fund’s Christine Lagarde – backed the decision.
Bernanke came under fire from analysts for having stoked nearly unanimous expectations that the Fed would announce the “taper” of its $85 billion a month bond-buying program after its policy meeting Wednesday.
The decision cost investors who bet on a stimulus cutback hugely, though benefiting many with long positions in global stocks.
Many blamed Bernanke and fellow members of the Federal Open Market Committee (FOMC) for having since May repeatedly suggested a September taper of the quantitative easing (QE) program.
University of Michigan economist Justin Wolfers called the surprise “the result of a needless miscommunication.
“This whole taper debate is one that should never have happened,” he wrote.
After Bernanke first spoke of a stimulus cut in May and June, “taper-talk came to dominate the financial headlines, and a monetary meme was quickly born. The result… was that markets over-reacted,” he said.
“Despite Bernanke’s effort yesterday in the press conference to paint the FOMC decision as entirely consistent with earlier communication from the FOMC, it was not,” said Chris Low at FTN Financial.
“The Fed may have done the right thing for the economy… but the Fed’s communications credibility is shredded.”
Speaking after the FOMC announced its decision, Bernanke argued that all along he has stressed that any decision to taper had to be backed by data showing steady gains in the economy, especially “continued improvements in the labour market.”
“I think there’s no alternative in making monetary policy but to communicate as clearly as possible, and that’s what we try to do,” he said.
International Monetary Fund chief Christine Lagarde voiced her support for the US Federal Reserve’s decision not to cut its stimulus, saying that was what the IMF had recommended.
“For the moment, it’s clearly the approach that we’ve always recommended,” she said.
Lagarde told reporters that was what the IMF thought was the right course.
“The IMF has always said… that it should be gradual, that it should be based on data with clear indication on what the criteria would be” for tapering the stimulus.
“We said it should be well-communicated, and we advocated a dialogue.”
“So clearly the decision that was communicated yesterday, and the various comments made by the chairman, show that it’s exactly what we at the Fund have advocated.”
On currency markets the Australian dollar has moved lower, cooling off after rallying almost 2 US cents higher on the US Federal Reserve’s decision.
Early Friday, the local unit was trading at 94.47 US cents, down from 95.15 cents on Thursday.
