Trichet’s code language

English Posts

16 May 2011 | 09:58

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Press statements from central bankers are always spelled for coded messages. An interesting game is played between the bankers, and the press and financial analysts. The reason for this is that the bankers want to align the long term expectations with their preferred course of action, while keeping their options to act open. In the end, they manage expectations, not markets.

The ECB last week decided to increase the interest rate by 0,25% to 1,25%. It is hard to see why this should be breaking news. If anyone would have told us this in 1990, we wouldn’t have believed it. Yet, for CNN and BBC, this was a pretty big thing. It was all over the news, all day.Some of the journalists trying to predict the future course of the ECB may need a course in logic, or perhaps in psychology. I read in several newspapers, that ‘Trichet did not give any clear indication on future interest increases’.

I think he did. He said that  ‘ this raise does not necessarily mark the beginning of a cycle of monetary adjustment’.What could he mean? In Logic one could distinguish several orders of meaning. What is said is not always congruent with the meaning people want to communicate. I would distinguish three types of sentences:Sentences that state simple matters of fact, such as: “his name is Trichet”. This relates to what you might call 1st order meaning.

Sentences that focus on matters of fact or opinions that are not relevant, and thus imply something about more relevant things. If for instance my answer to the question “what do you think of the president of the ECB?’ was ‘I really like his hair’, one could  infer something which you could call  2nd order meaning.

The 3d order meaning refers to Kemeling’s law. If Trichet says:  ‘ this raise does not necessarily mark the beginning of a cycle of monetary adjustment’, he means that he will raise interest rates further. You can infer this, not from what he says, but from the fact that he says something unnecessary. I admit, this is not pure logic, you need some common sense for this too.

Ebel Kemeling.