Tags: Bernanke

For Fed Chief, No News Makes for a Successful Day

Thursday, 28 Apr 2011 12:09 AM

 

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The script was repetitive. The lines were delivered without emotion. There wasn't even a twist.

The reviews for Federal Reserve chief Ben Bernanke's unusual press conference Wednesday would have sunk a Hollywood blockbuster. As the head of the famously vague central bank, though, he nailed it.

"I would give the chairman high grades for his performance today," said Dana Saporta, an economist at Credit Suisse. "I was a little relieved."

In an hour-long give-and-take with reporters — the first press conference by a Fed chief in almost 20 years — a relaxed Bernanke delivered little new information and said nothing to spook investors who were hanging on every word.

"We paid attention," said David Ader, head of government bond strategy at CRT Capital. "But he didn't say anything we hadn't heard already."

Financial news channels pasted second-by-second charts of financial markets on the screen next to Bernanke's face as he spoke. Not much drama there either: The Dow Jones industrial average rose gently as the Fed chief spoke. It ended the day up 96 points at 12,691.

For Fed watchers, there were a couple of morsels. Bernanke decoded his frequent pledge to keep interest rates near zero for "an extended period." He indicated rates would stay at the record lows for at least the next two Fed meetings, or about three months.

He also seemed to rule out further major efforts to help the economy. Shortly before Bernanke started talking, the central bank announced that its $600 billion plan to hold down interest rates by buying government bonds would end as scheduled in June.

He suggested the Fed would be reluctant to start a new program. "The trade-offs are getting — are getting less attractive at this point," he said. "Inflation has gotten higher."

In the run-up to the first of what the Fed says will be quarterly press conferences, Wall Street held its breath, and the financial media speculated endlessly about how the Fed chairman might respond to unfiltered questions from the press.

Cameras whirred as Bernanke, wearing a conservative gray suit and a red tie, walked to a dark brown wooden desk, where he sat fielding questions like the college professor he used to be.

Bernanke said the news conference was a step toward his goal of making the Fed more open and accountable to the American public. He has given television interviews, spoken to reporters about his South Carolina upbringing and allowed cameras inside the Fed.

In 2008, some Americans directed anger toward the central bank after the financial crisis. The Fed bailed out crippled insurer American International Group and opened itself for emergency lending to investment houses, not just commercial banks.

Critics, including some lawmakers, ripped the Fed for being secretive. The institution is often misunderstood: It isn't bankrolled by the taxpayers but by what it earns from its huge portfolio of Treasury and mortgage securities.

Bernanke stuck close to the statement the Fed issued earlier in the day, saying it would keep short-term rates near zero and end the bond-buying program.

"The Fed likely judges this first press conference a success," said Michael Feroli, an economist at JPMorgan Chase. "Nobody was able to trip up Bernanke, who generally came across as poised and balanced. Market participants may not have learned a lot about where Fed policy is heading, but today's event was more about the Fed communicating to a broader audience than the market."

Fed chairmen had only held press conferences twice before. Paul Volcker had one in 1979, shortly after he was appointed by President Jimmy Carter, and Alan Greenspan held an impromptu session with reporters in 1992.

The Fed has long acted in secrecy. For decades, the central bank didn't bother to explain what it was doing or why. It chose instead to let investors pore over scraps of information like Kremlinologists trying to discern the inner-workings of the Soviet Politburo.

But the Fed has slowly opened up. In 1975, Fed chairmen began testifying before Congress twice a year. In 1994, the Fed's policymaking committee started issuing statements after its meetings, disclosing the target for its benchmark federal funds rate.

Eight years later, Fed statements began to include a roll-call tally of how committee members voted on interest-rate policy. That allowed investors and the public to gauge the extent of dissent at Fed meetings.

Bernanke has taken openness to levels unthinkable under his predecessor, Greenspan, who tended to make opaque comments that Wall Street parsed word for word, as though he were an oracle.

The Fed chief sketched a picture of an economy growing steadily but still weighed down by prolonged unemployment, now at 8.8 percent. He noted that around 45 percent of the unemployed have been without a job for six months or longer.

"We know the consequences of that can be very distressing because people who are out of work for a long time, their skills tend to atrophy," Bernanke said.

But he added: "It's not clear that we can get substantial improvements in payrolls without some additional inflation risks, and in my view we can't achieve a sustainable recovery without keeping inflation under control."

Bernanke also acknowledged that gas prices, now nearing an average of $4 per gallon nationwide and climbing every day, are causing Americans financial pain.

The press conference allows Bernanke to pre-empt critics at some of the regional Federal Reserve banks who say the Fed isn't being vigilant enough against inflation, said Sarah Binder, a political scientist at George Washington University who studies the Fed.

"This really puts Bernanke's stamp on the policy of the Fed. It has the potential to neuter the dissenting view," she said.

And even if he didn't win many style points, Binder noted: "He seemed to enjoy himself. I don't think he was dragged kicking and screaming into this."

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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