Thursday, April 28, 2011

Straight from the horse's mouth

Business Times - 29 Apr 2011


Straight from the horse's mouth

Bernanke holds his first-ever press conference as Fed head

By LEON HADAR
WASHINGTON CORRESPONDENT

NOT unlike other top players in Washington, Federal Reserve chairman Ben Bernanke, dressed in a business suit and red tie, was the cool and calm Master of the Spin, massaging the media and staying on message during what could only be described as a historic event: for the first time in the Fed's 97-year history, the head of the US central bank was holding a press conference on Wednesday and answering reporters' questions.

Against the backdrop of high rates of unemployment and rising commodity prices, one could have expected the Fed chairman to be facing a bunch of tough and probing reporters who would be pressing the head of the central bank to explain whether he had failed in carrying out the two central duties of the Fed: maintaining stable prices, and maximum employment.

But not to worry. Unlike many of the somewhat rude reporters who tend to show up at press conferences on Capitol Hill - bombarding politicians frequently with mean questions about this rumour of corruption or that sex scandal - the journalists that Mr Bernanke faced seemed to be very polite. And they looked and sounded like the respectful students that Professor Bernanke had probably encountered during his economic seminars at Princeton University.

Don't expect any major change in the current policy of low interest rates, Mr Bernanke told the reporters, insisting that rising oil and food prices were 'transitory' and were not signalling inflationary pressures. The message was clear and concise, and the main target audience was not the reporters in the room but the American consumer - who is seeing the prices of petrol in the pump and of groceries in the supermarket going up and up, and who, according to recent opinion polls, seems to be in a very dark mood.

Indeed, in the context of the financial meltdown and the ensuing Great Recession, the Fed has found itself playing a very complex political role. On the one hand, by lowering interest rates to close to zero, by purchasing more than US$2 trillion in US debt in order to pump liquidity into the troubled credit markets, and by coordinating with the Treasury Department the financial bailout of the big banks, Mr Bernanke has been transformed into one of the most powerful players in Washington.

On the other hand, for most Americans - with the exception of an exclusive circle of politicians and investors - Mr Bernanke and the Fed have been shrouded in the mysteries of financial policy that sound to most of them less as the bread-and-butter issues that monetary strategy is supposed to affect and more like the intricacies of nuclear physics. Hence the man and the institution that seem to be determining the economic well-being of the country have remained an enigma to the American people.

Many supporters of the Fed have praised it for its activist approach, arguing that the Great Recession could have turned into Great Depression II if not for Mr Bernanke's effective role. But many critics (especially on the political right) have questioned whether the policies had made any difference, and argue that by pumping so much liquidity into the system - creating so much 'easy money' - Mr Bernanke has made it possible for President Barack Obama to increase government spending and grow the deficits. On top of that, his action has put downward pressure on the US dollar and perhaps even ignited a rise in inflation.

Easy political target

In a way, the Fed and its policies under Mr Bernanke - very much like President Obama's White House - have become convenient political targets for the Tea Party movement and conservative figures and media outlets, while the Fed chairman himself has been again and again attacked by lawmakers during his testimonies on Capitol Hill.

But unlike Mr Obama and other politicians, the Fed chairman couldn't ask his press secretary to respond to the criticism or, for that matter, to occasionally schedule a press conference that would allow the head of the central bank to explain his policy; indeed, the traditional modus operandi of the Fed has been based on a non-political and technocratic approach to public policy. The Fed chairman was supposed to operate as a detached Oracle above the bipartisan bickering in Washington.

And forget about press conferences where journalists could end up setting traps for the Fed chairman and have him make the kind of gaffe that could send shockwaves across the financial markets.

Interestingly enough, Mr Bernanke had advocated making monetary policy more transparent to the financial markets and the general public even before he joined the Fed and started taking steps in that direction after becoming chairman. The growing public and Congressional debate over the activist monetary strategy of the Fed coupled with reports about divisions over monetary policy among the Fed's decision-makers - in particular, between inflation 'hawks' and 'doves' - made it clear that the institution needs to use the media to communicate its message to a restive American public.

Higher media visibility

Indeed, this week's press conference (which will be followed by three more press conferences this year) was just the latest in a series of steps to raise the Fed's media visibility, which included a lengthy interview with Mr Bernanke on CBS News' prestigious programme 60 Minutes last year. Mr Bernanke has actually appeared in two press conferences, but the event on Wednesday was the first press conference in which the Fed chairman has taken questions from journalists and explained decisions of the Fed Open Markets Committee (FOMC).

Mr Bernanke's first-ever press conference followed the scheduled meeting of the Fed's policy group. And like many other policy meetings, it produced a post-meeting statement that once again had to be deconstructed by Wall Street investors hoping to figure out what the chairman and his colleagues were planning to do - or not to do.

'Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued,' the Fed statement said. But this time, the Fed chairman had the opportunity to explain to investors and the public what the statement really meant, stressing that core inflation remained below the Fed's comfort zone and that it wasn't posing a threat to the continuing economic recovery.

That wasn't in itself big news. Yet for the first time, the head of the central bank was able to present the Fed's case in his own words and without the spin of the politicians and pundits.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

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