It seemed we had the answers at the start of 2019. The Fed appeared on course to pursue a policy of quantitative tightening (QT) across the year and beyond, with a view to returning interest rates to what would have once been considered normal. Less than a year later, everything has changed. Signs of economic trouble ahead became more prevalent; whilst President Trump took a metaphorical hammer to the Fed, claiming it was “wrecking the economy.” Unlike Mrs Thatcher, this central bank was for turning and reverted to once again increasing its balance sheet through the purchase of US Treasuries. This is where we currently find ourselves.

Recently, the Financial Times published an article (“QE or not QE? Why the Fed is struggling with its message”) highlighting the need for improved communication from the Federal Reserve as to its current direction. There is much debate on whether we are entering another QE era, or whether this is a reactive policy designed to counteract the previously overwhelmed repo market. Amid the speculation one thing is clear; there is urgent need for a greater sense of direction from the Fed as to where rates are going.

Front footed communication is needed. While markets may be changeable and flexibility is required where possible, it is crucial to give as clear a sense of the possible routes the Fed may take during the next 12 months, as opposed to constantly looking to the next quarter.

There is also a pressing need for reassurance around the growing concern that central banks are running out of tools to combat the low growth environment.

Communication in this case shouldn’t be predicting where markets will go in the future; that is difficult to predict at the best of times. Instead, it should be transparent on where we are currently (QE or not QE) and what action would, or even could, be taken in possible future scenarios. These range from continued, terminable, low growth, a recession (although fears appear to have subsided for the US in 2020 at least) or a return to the stronger growth figures, although this also appears highly unlikely in the short-term future.

The Bank of England may have kept rates on hold; but it appears that central banks generally may be following the Federal Reserve down a somewhat murky path. Whether or not we are seeing the “Japanification” of developed economies remains to be seen. What is clear is that in attempting to keep their options open on rates, a great deal of uncertainty has been created, which in itself may inadvertently contribute to a lack of global growth.