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Bernanke Press Conferences Shedding Light on the Fed’s Inner Workings
Ben Bernanke’s first-ever press conference is important because the unprecedented move gives the world a look at the inner workings of the often arcane Federal Reserve. As a general rule, the Fed’s chairman avoids press conferences. Typically they issue statements that are worded with extreme care. Since the economic meltdown, however, the Fed’s increased role in crafting the nation’s fiscal policy has been under the microscope. As a result Bernanke decided to start holding press conferences every few months “to further enhance the clarity and timeliness of the Federal Reserve’s monetary policy communication”
Veteran Fed watchers say Bernanke will avoid make any unexpected observations about the economy. The Fed almost certainly won’t raise interest rates or change the course of the Quantitative Easing 2 (QE2) program to boost economic recovery. What makes the event important is that it is a new chapter in the history of U.S. central banking, one that brings transparency that allows the Federal Reserve to make its case for monetary policy directly to the American people. The press conference, “whose ostensible purpose is to add more transparency regarding Fed policy, is really designed to help repair its image with the general public, a process that began when Bernanke first appeared on ’60 Minutes,'” writes Bernie Baumohl, chief economist at The Economic Outlook Group. “The press conference serves multiple purposes. It helps explain the Fed’s role in the economy, improves public trust in the central bank, and can be used discreetly as a platform to place more pressure on Congress to reduce the swelling budget deficits.” During the financial crisis, some criticized the Federal Reserve’s role in the economy, with conservative Tea Party movement members calling for a dissolution of the Fed or a Congressionally-mandated opening up of the once-secretive central bank. The press conference is intended to silence the critics by providing certain details that were previously denied.
The Fed is notoriously tight lipped. Until 1994, the Fed never notified’ the public of policy changes, leaving an army of Wall Street “Fed watchers” to figure them out for themselves. The Federal Open Markets Committee (FOMC) did not release statements on a regular basis until 1999. The majority of Fed chairmen have shied away from the cameras. Now, Bernanke is welcoming them. Although Bernanke excels at not saying anything newsworthy, the timing of the first press conference comes at a particularly sensitive time: shortly before the end of the controversial QE2 monetary policy program, and during an argument over inflation. Bernanke and other FOMC members, such as Fed Vice Chairwoman Janet Yellen, argue that inflation remains subdued: Demand is slack, and core inflation below-target. But not everyone shares that view. More hawkish Fed officials, such as Thomas Hoenig of the Kansas City Fed, have pointed to frothiness in oil, food, and commodities markets to make loud calls for tightening.
Writing in the Atlanta Journal Constitution Washington Insider columnist Jamie DuPree says that “Ben Bernanke starts what will be the first of four annual news conferences about the work of the Fed. The job of Fed Chairman has always been a little mysterious, feeding a variety of conspiracy theories about its work and ties to other groups like the Trilateral Commission and more. The news conferences will take place four times a year, after the Fed meets for its quarterly policy-making meeting, where announcements are made on interest rates and economic policy. Bernanke is no stranger to the limelight, as he testifies regularly on Capitol Hill, taking questions from lawmakers. But Fed Chairs usually don’t do press conferences – and you don’t have to have much of an imagination to wonder if there could be some odd questions thrown his way. In fact, Fed Chairs often don’t do interviews either, making his twice-per-year testimony before the Congress a big story to cover. Because the insight of the Fed Chairman is so important to the markets, the Federal Reserve does not want the testimony leaked early, for fear that someone could use it to manipulate trading in some way.”