Economists Powell, Caputo and their application of the Greenspan rule

Alan Greenspan, the former Federal Reserve Chairman, once advised a member of the bank’s Monetary Policy Committee not to speak about their proposal to adopt an inflation targeting scheme. Greenspan believed that the main task of the Federal Reserve was to deal with prices and that economists’ words were overrated. He directly rejected the proposal, believing that the power of economists’ words was overrated and did not want monetary policy to be transparent to investors, companies, and savers.

Currently, Javier Milei’s government seems to be facing a similar dilemma in Argentina. While they have based their stabilization plan on a fiscal announcement, some of their moves are contrary to their campaign speech and explanations for reaching objectives are not convincing. This lack of clarity may lead to confusion and uncertainty in the market.

The same confusion is happening in Argentina where economic officials are following Greenspan’s rule of “going but not saying anything” in their public appearances. This lack of communication has led to uncertainty and speculation in the market.

In the US, Jerome Powell, the current head of the Federal Reserve gave an interview clarifying that the bank would not lower rates in March despite market expectations showing otherwise. This demonstrates how clear communication between policymakers and markets is essential for avoiding confusion and uncertainty.

Overall, Greenspan’s advice serves as a cautionary tale for policymakers about the importance of clear communication in public statements. It highlights how even small mistakes or ambiguities can have significant consequences on markets and economies, making it crucial for policymakers to always think carefully before communicating with stakeholders.

By Editor

Leave a Reply