Central bankers shouldn't make jokes, that much is clear. The Governor of the Reserve Bank of Australia, Glenn Stevens, made one yesterday, and it didn't go down well. Here's the joke:
As some of you may know, the Reserve Bank Board meeting was in Brisbane yesterday at which we deliberated for a long time to leave the cash rate unchanged.
A rib-tickler, I'm sure you'll agree. The joke here (and having to explain a joke is never a good sign) is that they didn't do anything – the cash rate stayed at 2.75 per cent – so the thought of deliberating for a long time over it is funny.
Except the problem is 1. that's not really funny at all and 2. what everyone thought he meant is that they seriously considered changing the cash rate, meaning it was more likely to change next time. And given they thought that, they acted on it, selling the australian dollar hard and selling it fast. Via FT Alphaville:
Oh no! The joke was confirmed as such shortly after, but not before a lot of people had lost a lot of money. The contrite deputy governor, Philip Lowe, said today that he'd spoken to his boss:
They were meant to be a light-hearted remark after what, he reports to me, was a very light-hearted introduction. I think some people in the financial markets and perhaps the press misinterpreted the intention of those remarks.
If we're looking for teachable moments here (and we're always looking for teachable moments), there are two to take home. Firstly, in a world where forward guidance is increasingly a standard tool in the central banker's kit, the words they use to communicate are more and more important. They can bring down economies, and should be treated with care.
Secondly, if you are the governor of a central bank, don't try and make off-the-cuff jokes during press conferences. It's likely to go wrong.