Alan Greenspan Has a Word or Two of Advice for Markets

Alan Greenspan realized that when it came to taming markets and managing perceptions of how the world's dominant economy should be steered, a few carefully chosen words could be invaluable. It's a lesson today's central bankers from Sydney to London would do well to reflect upon, after investors were whipsawed by monetary policy decisions in recent days.

In forgoing a rate hike last week, the Bank of England's big mistake wasn’t so much blindsiding the market as failing to appreciate the full power of officials’ messaging. The reason investors anticipated an increase was quite simply because top BOE authorities led them to believe it would happen, largely through interviews leading up to the Nov. 4 announcement. (Governor Andrew Bailey pushed back at a press conference later that day, saying he and colleagues had never identified a particular date to start tightening.)