There is indeed a lot of uncertainty about the economy right now and I guess that means that the term premium is rising. Uncertainty is always with us and I’m not sure it is worse today than, say, 10 years ago, but I do think that if the Fed wants to minimize it, they could do two things. 

First of all, they could just do less. It is the height of folly and hubris to believe that monetary policy can or should be used to fine-tune the economy. In attempting to exert a control they don’t have, the Fed itself disrupts the normal operation of the economy with little regard for the unintended consequences. 

And there are always unintended consequences

The second thing the Fed could do is even simpler: shut up. The constant talking, about the economy and what they think about future policy, makes the uncertainty around future Fed policy…well, uncertain. 

Interpreting Fedspeak can be a whiplash affair with one Governor hawkish and one dovish and some so confused they take to blaming “dark matter”. The whole idea behind more openness was to make future policy less opaque, for the Fed to provide “forward guidance” and thereby remove this uncertainty.

 But with so many voices speaking, so many egos jockeying for attention, they’ve accomplished the opposite.