Fed President Bill Dudley Says Markets Misinterpret Fed

When the market began its summer swoon, we posted about the disconnect between what the Fed Chairman said and the market reaction. Today, the Wall Street Journal reports a statement by NY Fed President Bill Dudley saying,

"A top U.S. central bank official warned financial markets Thursday they’re reading the Federal Reserve wrong if they think a tightening in monetary policy has gotten closer.  “A rise in short-term rates is very likely to be a long way off” even as it’s possible that the central bank may slow the pace of its bond-buying program later this year, Federal Reserve Bank of New York President William Dudley said in a press briefing."

There you have it: official confirmation of our thesis.  Speaking about communications, it is clear that this press briefing and comments by other Fed Presidents are part of the Fed's communications strategy to undo the panic caused by the market's knee-jerk reactions earlier.  Nicely done. 

What makes Mr. Dudley's comments doubly interesting is that he was for many years a Managing Director and Chief U.S. Economist for Goldman Sachs.  He certainly understands how Wall Street works and how delicate and volatile market psyches can be.