Tales from the Trail

Bernanke and the media — Round One coming up

The Federal Reserve needs to burnish its image, but press conferences aren’t entirely a public relations exercise.

For Fed Chairman Ben Bernanke, the emphasis on greater openness predates the financial crisis. After his notoriously cryptic predecessor Alan Greenspan, Bernanke has made the Fed more open and his own statements easier to parse.

Many economists, Bernanke included, believe financial markets function more smoothly when the Fed makes its intentions, and its expected reaction to twists and turns in the economy, crystal clear.

In fact, one of Bernanke’s early transparency initiatives, an explicit target for inflation, was shot down by Democratic Congressman Barney Frank who argued that since the Fed has a dual mandate to keep inflation in check but also promote maximum employment, setting an inflation target would focus too much on one side of that equation.

Nevertheless, Bernanke has slowly made Fed thinking more accessible to the public. Under his direction, the Fed published minutes of policy meetings after three weeks, instead of six.

Washington Extra – Under fire

benHe is not quite the loneliest man in the world, but Fed chairman Ben Bernanke must be feeling in need of a friend these days. First those nasty Tea party types stormed the capital with their distinctively un-Fed-friendly views. Dismiss them as extremists if you will, but they seemed to have been joined by an array of world leaders in their criticism of quantitative easing, the Fed’s purchases of U.S. government debt in an attempt to stimulate the economy.

The rest of the world fears the Fed’s action amount to a backhand form of competitive currency devaluation. Many Republicans fear the Fed is enabling profligate U.S. budgetary policy. Even Fed governors and regional presidents are uneasy. Governor Kevin Warsh warned on Monday the Fed was not “a repair shop for broken fiscal or regulatory policies” and that the Fed could lose its “hard-earned credibility – and monetary policy can lose its hard-earned sway – if its policies overpromise or underdeliver.” Dallas Fed Reserve Bank President Richard Fisher then chimed in, calling quantitative easing “a bridge loan to fiscal sanity.”

In the end, the effects of the Fed’s latest move on economic growth may not be that dramatic. Its effect on the Fed’s long-term credibility, though, are less clear, and perhaps more worrying.