Bernanke steps up to scrutiny
-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-
While ECB head Jean Claude Trichet is nearing his final post-policy decision press conferences – he retires in October – on the 27 April the Fed’s Ben Bernanke will be stepping up to the podium for his first.
This is a massive shift in dynamic for arguably the world’s most important central bank. In the past we have only had the minutes to pore over alongside Fed speeches. But now we get a regular post-policy update along with a Q&A session where journalists can pick the head of the Fed’s brains about one of the most important events for financial markets this year: will the Federal Reserve start to normalise rates.
But investors shouldn’t get too excited. If it is anything like the ECB’s monthly press conference or the Bank of England’s quarterly Inflation Report then it won’t be any more candid than the Fed minutes.
Trichet’s speech is fairly opaque, complete with phrases and signals that hint at what the ECB is thinking, but don’t pin anything down. Likewise, Trichet takes no nonsense during his Q&A sessions. A question from a journalist that requires too direct an answer like: “Is the ECB on a tightening cycle?” is swiftly dismissed with a flick of the President’s hand.
We don’t know how tightly stage-managed Bernanke’s press conferences will be, but due to the importance of the Fed to global financial markets, one can assume the Fed Governor won’t adopt too candid a tone and his opening remarks will be along the lines of the current Fed minutes.
The Fed has to tread carefully. After all, former Fed Governor Alan Greenspan could move the markets based on how full his brief case looked before a meeting.
Bernanke the academic will also have toughen up when he faces the Q&A sessions. Journalists will be hungry to break a story and trick him into saying too much. He will need to be able to control how much he gives away in his answers, so it is likely that the first few conferences could be fairly dull affairs. Added to this, Bernanke will want to perfect the art of the live press conference before he signals a shift in policy.
So why is the Fed embarking on these press conferences? The ostensible answer is that the ECB have won more praise for their communication strategy than the Fed, especially during the financial crisis. Added to this, when transparency is key to the financial industry it helps to have a central bank that doesn’t only operate behind closed doors but instead opens itself up to the scrutiny of the press.
But there is another aspect to these press conferences. Traditionally FOMC members tend to vote in line with the Governor. Greenspan’s stewardship was notorious for the Governor’s sway over policy decisions. Yet in recent months we have seen a dissenter (Tom Hoenig, President of the Kansas Fed) and a divergence of views amongst Fed members. More hawkish members like Philadelphia Fed President Plosser and Minneapolis President Narayana Kocherlakota have hinted they would like to see either rates rise or QE2 potentially cut short. This is in stark contrast to Bernanke and New York Fed President Dudley who remain arch doves and are still worried about the economic outlook.
By holding his own press conferences Bernanke will have the opportunity to steer the debate back to his own line of thinking. While some have argued that the divergence of opinion within the Fed suggests we are in a new epoch, we are not so sure. By giving Bernanke the hold of the reigns of the Fed’s direct communication with the market and the press he also gets to push his point of view to the front of the discussion.
So while all eyes will be on Bernanke on 27 April, it is also his chance to stamp his own view on Fed policy expectations.