Communication 
 
 Janet Yellen may have just committed the first substantial blunder of her chairmanship of the Federal Reserve. The mistake: being specific when the occasion called for generality. “The more experienced [Ben] Bernanke knew to avoid clarifying deliberately vague statement language,” Michael Feroli, chief U.S. economist at JPMorgan Chase, wrote in a client note after the financial markets reacted badly. 
 
 Investors are dying to know when the Federal Reserve will start raising its target for the federal funds rate, which has been stuck on the floor at zero percent to 0.25 percent since December 2008. The Fed has repeatedly refused to be pinned down. In its statement today, for example, the rate-setting Federal Open Market Committee (FOMC) said “it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends [emphasis added].” 
 
 At her first press conference since becoming Fed chair in February, Yellen was asked what the Fed meant by “a considerable time.” The correct answer to this question is, “We weren’t specific for a reason. Go away.” Yellen, having been connected with the Fed in one capacity or another for most of the past 20 years, should have known that. Instead, she said, “You know, this is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing.” That was a bit quicker than markets had been expecting, so interest rates rose and stocks fell. The comment “sent equity markets into something of a tailspin,” wrote Paul Ashworth of Capital Economics. 
 
 Michael Wallace of Action Economics in Colorado called Yellen’s specificity a “gaffe.” He wrote that Yellen made “the mistake of �?taking the bait’ and providing a time reference for the purposefully ambiguous phrase.” It wasn’t the only factor in the market selloff today—new economic projections by members of the FOMC were also a factor—but it did make a difference. 
 
 It’s a fair bet that other FOMC members will be suggesting to Yellen that she stick closer to the script next time she addresses reporters. ||||| It wasn't the debut Janet Yellen had hoped for. During her first press conference as Federal Reserve chairman, she said something she almost certainly hadn't meant to, and the markets took it badly. The misunderstanding was more their fault than hers. Even so, it's yet another illustration of the perils of forward guidance. 
 
 Yellen was asked how long the Fed expected to wait before starting to raise interest rates once it has brought quantitative easing to an end: What did the official formula of "a considerable period" mean? She said, "It's hard to define but, you know, it probably means something on the order of around six months or that type of thing." 
 
 The markets seized on this as actionable information. At the present rate of tapering, QE will end in October. Add six months and you get to next spring. Previously markets had expected rates to start rising a few months later than that. So Yellen was judged to be tightening policy, stock prices fell and bond yields rose. 
 
 That was a remarkably dumb conclusion for investors to draw from a press conference that had otherwise been at pains to say that the expected policy track was unchanged. Aside from the six months comment, Yellen gave no indication whatever that the Fed intended to tighten policy, relative to what the markets were expecting. 
 
 What she should have said when asked what "a considerable period" meant was, "It's hard to be more precise; it all depends on what happens." After all, the Fed has explicitly moved away from attaching dates to information about its policy intentions, preferring to say that policy will be guided by conditions. The length of the considerable period will depend on conditions. Enough said. 
 
 The fallacy about forward guidance that repeatedly tripped up Ben Bernanke, Yellen's predecessor, and caused her to stumble at her first outing is the idea that more information -- more words, more numbers, whatever -- must be good. No. 
 
 It's valuable to be told that the Fed will keep interest rates very low while there is still some slack in the labor market, inflation is suppressed, and market expectations of inflation are well-anchored. Yellen said all that. It's also valuable to be told that the Fed will consider a range of indicators in judging labor market conditions -- as opposed to relying solely on a numerical threshold for the unemployment rate (which the Fed has now rightly dropped from its guidance). She said that too. But since the Fed doesn't have a fixed formula for labor market slack -- that's a judgment call -- there's really nothing more to be said. 
 
 Nothing useful, I mean. Investors always want more information, but they're not always good at sifting useful information from noise. The Fed could help them by recognizing that sometimes less is more. 
 
 (Clive Crook is a member of the Bloomberg View editorial board. Follow him on Twitter @clive_crook.) 
 
 Tobin Harshaw at tharshaw@bloomberg.net. 
 
 
 
 To contact the writer of this article: Clive Crook at ccrook5@bloomberg.net. 
 
 To contact the editor responsible for this article: Tobin Harshaw at tharshaw@bloomberg.net. ||||| A diminutive woman with a pixie haircut is deciding the future of the world’s biggest economy, and we don’t know what she’s really thinking. 
 
 It’s not that Janet Yellen is mysterious by nature. She’s a regular person from Brooklyn. She has an open face and a warm smile and, as her predecessor Ben Bernanke told me recently, “more of the common touch than I did.” She also has a decade-long pedigree serving in various jobs at the U.S. Federal Reserve. (“If you were dreaming up a training school for Fed chairmen, it would be her life story,” her old colleague, Alan Blinder, once joked.) Yet there are so many unknowns about where Yellen is taking the newly empowered Fed that she’s making Alan Greenspan look plain-spoken by comparison. Seven months into her tenure, her favorite locution so far appears to be some form of “we don’t know.” 
 
 I’m not just talking about Yellen’s something-for-everybody speech Friday at the annual Jackson Hole meeting for central bankers – when she said that the labor market has “yet to fully recover” (pleasing inflation “doves”), but that neither do we know how imminent inflation is (assuaging hawks). She is also being cagey about how much she intends to fulfill the Fed’s broad new role as stern overseer of the U.S. economy—and master of Wall Street. 
 
 As has been written, Yellen is clearly passionate about the employment problem. It was no accident that the theme of this year’s Jackson Hole meeting was “labor market dynamics,” and the AFL-CIO’s chief economist, Bill Spriggs, was invited while Wall Street economists were not. (“The Fed organizers wanted to keep the focus on labor,” Spriggs told me. “Their fear was the Wall Street economists would just want to get into the minutiae of Fed policy.”) But she won’t say precisely how she’s measuring unemployment. Bernanke’s Fed had used a 6.5 percent unemployment rate threshold for guidance on when to begin worrying about inflation. When the rate dropped to that level, Yellen came up with an important innovation: Rather than simply setting a new metric, she announced that the Fed would now assess the labor market more qualitatively, roaming across a range of no fewer than 19 different indicators under a “Labor Market Conditions Index.” 
 
 All of which only gave her even more latitude to say, “We don’t know.” 
 
 Some accounts have painted Yellen as a full-throated progressive –a pro-labor throwback to the pull-out-all-the-stops Keynesians of the pre-Reagan era—but her main sponsor for the Fed job, Bernanke, disagrees. “I think that, philosophically, Janet is very much within contemporary mainstream economics. She is appropriately concerned about jobs, as I was, but she has also shown that she is committed to maintaining price stability,” the former Fed chief, now at Brookings, said in an interview this month. 
 
 But Yellen is overturning the traditional ways of looking at the labor markets, talking of pragmatic responses and dispensing with traditional macroeconomic formulas. Using her new index, she is disaggregating the unemployment rate in ways Fed chiefs haven’t done before, and she’s become as much a psychologist as a numbers person—wondering openly whether all those despairing dropouts and part-timers can be lured back into the workforce. Yellen is also very cagey about whether that’s happening or not: She’s playing her own private game of chicken with inflation, indicating that she wants to see more wage growth for workers (another thing that’s hard to track ahead of time) before she raises rates. Beneath the careful analysis and the caveat-freighted sentences, the bottom line seems to be: “We’re making this up as we go along.” 
 
 Another big change in the Yellen era is that for most of Bernanke's tenure, the Fed played a regulatory role in banking, but possessed no statutory responsibility to oversee the systemic stability of the entire economy. Now it does. There’s much greater sense, not just from the changes under the Dodd-Frank law but also in the Fed’s internal thinking, that the Federal Reserve’s biggest job of all in some ways is this one: to monitor overall stability. It has greatly increased resources for doing that, and Yellen has called for even more “macro-prudential”—the voguish term that means the Fed’s new task is to watch the behavior of the nation's financial sector, especially Wall Street, very closely—tools that respond to specific threats, like the way British regulators put new restrictions on mortgage lending. Earlier this month, the Fed and Federal Deposit Insurance Corp. rejected the banks’ “living wills”—in other words, their plans for an orderly bankruptcy if they get into trouble –as unrealistic. That’s basically the Fed’s way of saying the banks still have a lot of restructuring to do to make themselves more stable, or else the Fed and FDIC can decide to dismember them. 
 
 In this way too there is a quiet and little-understood revolution going on beneath our noses—Yellen called it a “work in progress” at Jackson Hole—and the only question is how aggressively she’ll wield her new power. Again, we just can’t say. Remember back in the Greenspan era, when all the talk was of asset bubbles and whether or not the Fed should burst them by jacking up rates? No one then saw the financial system itself as a source of risk. Now, post-crisis, Yellen is turning all that around, saying that getting macro-prudential policy right should by itself take care of fretting about most asset bubbles: If finance is tightly leashed, then asset bubbles can’t do that much damage to the economy. Yellen is saying, in other words, that she intends to resurrect the lost art of regulation with a vengeance—and during the Greenspan era of bank self-determination, regulation truly did become a relic—and that in turn should change the way we think about monetary policy, too. ||||| There is good reason to hope that Janet Yellen may go on to become one of the great leaders of the Federal Reserve: she’s a first-rate economist, a gifted explicator of complicated concepts, and an experienced hand at navigating Washington. (At her first appearance as Fed chief on Capitol Hill, last month, the Republican senators may not have been eating out of her hands, but they treated her with unusual deference.) In policy terms, she’s on the side of the angels: passionately committed to getting the economy growing and bringing down unemployment, particularly for the long-term jobless, who have been the biggest victims of the Great Recession and its aftermath. 
 
 On Wednesday, though, at her first press conference as chairwoman of the Fed, Yellen had an awkward time, conveying a message that she may well not have intended to, and spooking the markets. This may not be a big deal: Alan Greenspan and Ben Bernanke made similar errors in their early days and quickly recovered. But it did indicate some of the challenges Yellen faces in extricating the Fed from the emergency policy actions it has taken during the past five years. 
 
 Her first task was to explain a U-turn in the Fed’s communications strategy. In December, 2012, in an effort to keep down long-term interest rates, particularly mortgage rates, the Federal Open Market Committee, a policy-making body that Yellen heads, publicly stated that it wouldn’t even consider raising the short-term interest rate that it sets—the federal funds rate—until the unemployment rate had fallen to 6.5 per cent. At the time, the jobless rate was 7.8 per cent, and the 6.5-per-cent threshold for a possible interest-rate hike seemed a long way off. But unemployment has fallen rapidly in the past year, and the rate is now down to 6.7 per cent. The markets wanted to know what the Fed would do if it reached 6.5 per cent. 
 
 Yellen’s answer today was that it almost certainly wouldn’t do anything, but we’d have to trust the judgment of her and her colleagues on it. In place of its firm “forward guidance” regarding the 6.5-per-cent figure, the F.O.M.C. said, in a statement, that its assessment of when to start raising rates would “take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.” The statement also said that the committee believed that it would be appropriate to maintain its rock-bottom target for the funds rate (between zero and a quarter of one per cent) for “a considerable time” after its policy of quantitative easing—printing money to buy bonds—ends, which, at the current pace of drawdown, is likely to happen in October. 
 
 This change in language wasn’t wholly unexpected. However, it caused some confusion. Like most other observers, I initially read it as a dovish document: it appeared to be designed to give Yellen and her colleagues the leeway to keep the funds rate low even well beyond the date when the unemployment rate drops below 6.5 per cent. But the bond markets reacted differently. There was a significant sell-off after the statement was released, and market interest rates rose—indicating a belief among investors that an early rise in the funds rate was more, and not less, likely. 
 
 So what, you might say: markets are always bouncing around, and they usually settle down eventually. That’s true, but it matters a great deal to the Fed how investors on Wall Street, and in other financial markets around the globe, interpret its public statements. These days, the primary way that monetary policy works is by influencing expectations about future changes in policy. If bond-market investors believe that a rise in the funds rate is likely to come earlier than they had been expecting, they will be apt to sell now. That can cause an immediate tightening in monetary conditions, which can hit the housing market and other interest-sensitive sectors of the economy. Last summer, Bernanke inadvertently caused a substantial rise in mortgage rates by appearing to suggest that the Fed was already intent on drawing down its asset purchases. 
 
 During her press conference, Yellen got the opportunity to explain what the statement really meant, but instead of clarifying the situation she made it worse. She started out well enough, stressing that the change in wording didn’t mean that the policy stance had changed in any way. Issuing forward guidance had served a useful purpose, she insisted. But, as the unemployment rate had fallen faster than expected, it had created uncertainty about what would happen when the threshold was reached. That’s why she and her colleagues had decided to drop the 6.5-per-cent figure and replace it with the “qualitative guidance” that the Fed would consider a much wider range of metrics than simply the unemployment rate. Yellen also pointed to the bit in the statement about keeping rates constant for “a considerable time” after the policy of quantitative easing ends. 
 
 That’s where she got into trouble. Ann Saphir, a Reuters reporter, bluntly asked her how long the gap would be between the end of the Fed’s asset purchases and the first interest-rate hike. A more experienced central-bank head would have obfuscated and said something vague: policymakers generally believe it is imperative to leave themselves some discretion. But Yellen again referred to the phrase “considerable period,” saying, “It’s hard to define but, you know, probably means something on the order of around six months.” 
 
 To this viewer, it sounded like an offhand comment, but that wasn’t how the markets interpreted it. Six months from October is next April—about a year away. Wall Street hadn’t been expecting a rate change until the second half of 2015 at the earliest. Yellen, inadvertently or not, had changed the timetable—or so it seemed. The stock market, which had recovered a bit after the release of the Fed statement, immediately gapped down. The Dow, which was down about forty points, fell another hundred and fifty points. In the bond markets and the futures markets, prices shifted sharply to reflect the increased likelihood of an interest-rate rise in the spring of next year. 
 
 Yellen, although she couldn’t have known of the market reaction, appeared to realize that she had erred. Any decision to raise rates, she stressed, would depend “on what conditions are like” at the time. She and her colleagues would look at how fast the labor market was moving toward full employment, and whether the inflation rate, which has been dangerously low the past couple of years, was moving back toward the Fed’s two-per-cent target. If inflation was persistently running below the target, that would be a good reason to keep the federal funds rate where it was, she added. 
 
 These were excellent points, and they added to my impression that Yellen has no intention of raising interest rates until she is entirely convinced that the economy is finally growing normally, or something very close to it. Unfortunately, though, the communications error had been made. On the newswires and on Wall Street, the message was that the Fed is getting ready to start raising rates, not immediately, but within a year or so. Traders had already seized upon a set of economic projections released alongside the F.O.M.C. statement, which appeared to indicate that some members of the committee had slightly raised their interest-rate forecasts since their previous meeting. Yellen, in her answers, tried to downplay these projections, saying that people should focus on the statement itself. But it all added to the selling pressure in the markets. 
 
 Once again, this is not the end of the world, and Yellen didn’t do anything wrong. To the contrary, she delivered a cogent and persuasive explanation of why the Fed’s ultra-accommodative interest-rate polices need to be maintained for a considerable time to come: inflation is too low, and there’s lots of slack left in the labor market. But she allowed her message to be garbled, which is something she’ll have to address going forward. 
 
 With the gradual pickup in the economy and the drawing down of quantitative easing, Wall Street’s attention is beginning to focus on the eventual normalization of interest-rate policy, and what impact that will have on the markets. An inflection point in policy is a tricky time to be Fed chairman. There’s always a lot of uncertainty—and provisional statements, which are heavily qualified, can be seized upon as firm expressions of policy. Bernanke had his troubles with this last year; it looks like Yellen may experience some of the same problems. Welcome to the hot seat, Madame Chair. 
 
 Photograph by Andrew Harrer/Bloomberg/Getty.
– Janet Yellen is getting a lot of grief over her first news conference as leader of the Federal Reserve for, of all things, speaking too clearly. As Rex Nutting at MarketWatch observes, Yellen spoke for an hour yesterday, "but the market only heard three words: 'around six months.'" Those words came when Yellen was asked when the Fed might start raising interest rates once its tapering strategy ended. The official Fed statement on the matter was predictably vague, but Yellen wasn't: “You know, this is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing.” The markets interpreted that to mean interest rates would go up sooner than expected and immediately tanked. "A more experienced central-bank head would have obfuscated and said something vague," writes John Cassidy at the New Yorker. He calls Yellen's debut "awkward," but notes that Ben Bernanke and Alan Greenspan got similarly tripped up in their early days. Yellen wasn't trying to change policy, and investors drew a "remarkably dumb conclusion" in thinking otherwise, writes Clive Crook at Bloomberg. Still, Yellen needs to be careful in what she says. "Investors always want more information, but they're not always good at sifting useful information from noise," he writes. "The Fed could help them by recognizing that sometimes less is more." Adds Peter Coy at BusinessWeek, referring to the Fed's rate-setting committee: "It’s a fair bet that other FOMC members will be suggesting to Yellen that she stick closer to the script next time she addresses reporters."