Jobs, Inflation, and What Bernanke Said
Did the Fed chairman come clean in his first press conference?

The Federal Reserve opted for an inside-the-Beltway response to its sagging popularity ratings. It held a press conference, the first of a four-times-a-year public airing of policymaking.

With eager expectation, the Washington press corps trooped to the Fed's headquarters, but the reality did not live up to the hype. Nothing was said to roil financial markets or that would wind up as a clip on late-night television. Indeed, the discussion was dry and undramatic and could only have been torpor-inducing to anyone outside the economics profession.

In the pursuit of a notion of openness, the Fed will have lost its mystique.

That is, Fed Chairman Ben Bernanke succeeded admirably.

The setting of monetary policy is supposed to be dry and undramatic, driven by data and the technical apparatus of forecasting. If at times his answers sounded as if they were read from the pages of a textbook, that is because he wrote textbooks in his previous career.

The real importance of the press conference relates to what was unsaid and what may be lost forever.

Chairman Bernanke provided an extended explication of policy based on the Federal Open Market Committee's understanding of the forces shaping the economic outlook. This should improve the public's understanding of the rationale for Fed action and the signals to look for that would necessitate a change of course. It also provided a benchmark for all subsequent statements of Fed officials.

Mr. Bernanke, however, did not characterize the range of opinion or depth of feeling expressed at the meeting. This makes it hard to determine how the balance of opinion within the confines of the Fed's marble palace will shift as events unfold. Such silence about the internal debate in the committee will be hard to maintain once there is a dissent or two among the committee members.

The sad fact is that, as these performances become a public fixture, the Fed's understandable desire to avoid drama could add to public cynicism. Over time, the Fed will be seen as just another Washington institution whose leader takes media training classes to massage the message. In the pursuit of a notion of openness, the Fed will have lost its mystique.

This was probably unavoidable given the public's mistrust of the institution, and it is too late to say, "Pay no attention to the man behind the curtain." However, the people may have felt safer when they thought they were watched over by someone who was wise and powerful.

Vincent R. Reinhart is a senior fellow at AEI.

White House Photo by Pete Souza

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About the Author

 

Vincent R.
Reinhart
  • Vincent Reinhart, a former director of the Federal Reserve Board's Division of Monetary Affairs, joined AEI in 2008 after working on domestic and international aspects of U.S. monetary policy at the Fed for more than two decades. He held a number of senior positions in the Divisions of Monetary Affairs and International Finance and served for the last six years of his Federal Reserve career as secretary and economist of the Federal Open Market Committee. Mr. Reinhart worked on topics as varied as economic bubbles and the conduct of monetary policy, auctions of U.S. Treasury securities, alternative strategies for monetary policy, and the efficient communication of monetary policy decisions. At AEI, he has continued his work on all of the above in addition to research on key economic variables before and after adverse global and country-specific shocks, policy mistakes leading to the 2007-09 financial meltdown, and the implementation and impact of quantitative easing.
  • Email: vincent.reinhart@aei.org

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