The Fed chief seems to prefer outsourcing monetary policy to financial markets. That’s a bad idea.
Second, financial markets price by what they expect the Fed will do, not what it should do. So, when the central bank is silent about how it is interpreting incoming information, policy expectations become more muddled and indeterminate—the Fed looking at markets, with markets looking at the Fed. This is a recipe for confusion, greater volatility and higher risk premia.
