Federal Reserve Governor Waller said the Fed must adopt a clear, consistent policy reaction function so markets can form expectations; quantitative imperfections in a reaction function are tolerable, but its qualitative clarity is essential, and his view on the function’s completeness differs sharply from Fed Chair Warsh. Waller said surprising markets is unhelpful and criticized a ‘‘never explain’’ approach to communication, arguing it is better to disclose some forward policy signaling. He war

Federal Reserve Governor Waller said the Fed must adopt a clear, consistent policy reaction function so markets can form expectations; quantitative imperfections in a reaction function are tolerable, but its qualitative clarity is essential, and his view on the function’s completeness differs sharply from Fed Chair Warsh. Waller said surprising markets is unhelpful and criticized a ‘‘never explain’’ approach to communication, arguing it is better to disclose some forward policy signaling. He warned there are strong internal disagreements over communication—including last year’s vocal opposition to scenario analysis—and said outcomes from the communication workgroup are uncertain. On balance-sheet policy, Waller said the working group will oppose any recommendations that would push reserves back toward scarcity. For the data workgroup he emphasized protecting trust by using verifiable data, and said the inflation workgroup may be the most useful to the FOMC.