to the surprise of analysts
It seems the problem is communication. The FED appeared to be ready , and signalling, a reduction in bond purchases.
There are two lessons:
- transparency
- things may change over time
Transparency: The analysts do not say that they expected the stimulus to weaken because of the state of the economy; they say that it was because of FED's words.
In recent years central banks have been switching towards clearer communication. In the past they avoided being clear about their goal and policy, being concerned that if they do not deliver as promised, they will lose reputation. The thinking has changed and now Banks try to be transparent and open about what they think about the economy. Bank of Canada was one of the pioneers, providing markets with detailed information about the economy and its thinking. This time transparency did not work with the FED.
Changing economic conditions. The decisions of the FED are collective decision, by voting of its Open Markets Committee. The committee updates its information continuously and, apparently, its members felt the economy was not as strong as they thought.
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