Fed shifts toward greater openness
Federal Reserve Chairman Ben Bernanke's testimony before a House committee was postponed because of the East Coast snowstorm, but he made sure to release his statement anyway. Why? Bob Moon reports.
Federal Reserve Chairman Ben Bernanke (Mark Wilson/Getty Images)
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TEXT OF STORY
Kai Ryssdal: Today Ben Bernanke managed to leave Congress out in the cold, so to speak, and yet still get his message across to investors here and abroad. The Fed chairman's testimony before the House Financial Services Committee was postponed on account of all that snow. That, of course, meant no questions from all those pesky lawmakers.
But Bernanke saw to it that his written statement -- prepared remarks, they're called -- was released anyway. Just so he didn't miss the opportunity to start the delicate task of bracing Wall Street for what lies ahead. Our senior business correspondent Bob Moon has more now on Ben's break-it-to-me-gently-baby strategy.
BOB MOON: It's not that veteran floor trader Ted Weisberg of Seaport Securities is complaining. He appreciates the way Bernanke is carefully telegraphing his strategy to gradually tighten the money supply. Weisberg just doesn't recall this kind of openness in his nearly half-century on Wall Street.
TED WEISBERG: I think it's kind of unusual. I guess it's good. Listen, the more transparency, the more people have time to digest the news, the less of a knee-jerk reaction you will get at many different levels, including the stock market.
At Potomac Research Group, former Fed governor Lyle Gramley says Bernanke isn't just looking to score popularity points by signaling his intentions this way, he's purposely moving the markets.
LYLE GRAMLEY: Back when I was a governor, back in the early 1980s, the theory was that you ought to surprise markets. The theory now says that what you ought to do is try to be as communicative as possible. If you can inform financial markets where monetary policy is likely to go, then financial markets will price assets in ways that help you get your results you want.
Bernanke's statement offered assurances that he's got an exit strategy ready. But former Fed monetary affairs director Vincent Reinhart says it was carefully crafted to send a simultaneous message that the time is not yet appropriate.
VINCENT REINHART: So he's letting that big truck behind him called financial markets know that at some point, the car was going to slow down. So he just tapped on the brakes.
Reinhart, who's now with the American Enterprise Institute, says trying to talk the markets in the direction you want can be risky. They can start worrying about too much talk.
REINHART: The thing about talking is you have to make sure you actually follow through with it. It's not an independent instrument. But it is something you can do to amplify the power of the instruments you do have.
If it sounds as if Bernanke is trying to orchestrate what the markets do -- well, now you've got the picture.
I'm Bob Moon for Marketplace.
Comments
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From HI, 02/11/2010
Why Ukraine got Юлія Володимирівна Тимошенко (Yulia Tymoshenko), but we got our present Federal Reserve Chairman? They got first choice.
From Houston, TX, 02/11/2010
More openness from the Fed? Aren't they burying exactly what they did during the "collapse" until 2018?
From HI, 02/11/2010
"
you ought to surprise markets. The theory now says
"
~~LYLE GRAMLEY~
Depends what is your objective. If you want stabilization and continuous curves on the chart then publish your predictions before hamering the tick with Fed Power. Conversely, if you want instead to prove whether or not Fed Power is extant thus use statistically significant hammer at unexpected moment. Suddenly change rates *big time* when all markets are open and fluid then observe market reaction with volume and prices.
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