Federal Reserve Chairman Ben Bernanke took questions from the press for 45 minutes yesterday. His answers were direct, as complete as they could be (given the vagaries of economic forecasting) and even at times groundbreaking.
We learned, for example, that when the Fed assures us of low interest rates for an “extended period,” it means for “a couple of meetings.” “We don’t know with certainty,” Bernanke added.
There was a lot left unanswered -- and unasked. (I’ll get to my preferred questions in a moment.)
Considering how momentous a break from tradition it was for Bernanke to hold the first post-meeting press conference in the Federal Reserve’s 98-year history, the immediate reaction was muted. The earth is still rotating on its axis, the New York Stock Exchange is set to open at 9:30 a.m. today as planned, and the gods of the markets seem at peace with the outcome.
It’s true that, for anyone over the age of 40, the press briefing was a big deal. Prior to 1994, the Fed didn’t even announce its policy changes. Too much information in the hands of the public was thought to be dangerous.
It was left to a subspecies of homo sapiens, known as “Fed Watcher,” to analyze the pattern and size of the Fed’s daily open-market operations and divine the central bank’s intent.
Such opacity never made any sense. The Fed changes policy because it wants to change behavior, raising or lowering its benchmark interest rate to induce the public to save or spend more. By all rights, it should use a brass band to signal any shift in its stance.
End of an Era
In 1994, the Fed let down its guard ever so slightly and began announcing policy changes. Even then, it hid behind boilerplate language that provided more of an escape hatch for the bank than vital information for the rest of us.
If Bernanke’s willingness to quantify “extended period,” a phrase that has been a fixture of every post-meeting statement from the Fed for the past two years, is a sign of a new openness, yesterday’s press conference was a good start.
Herewith is my list of still unraised questions for Bernanke:
1. When does the Fed plan to start raising its benchmark rate and/or start shrinking its balance sheet? OK, then a follow-up: What’s your best guess when that will be?
2. How low does the unemployment rate have to go before you will be comfortable raising interest rates without risking the wrath of Congress for betraying your dual mandate to pursue stable prices and maximum employment?
3. Speaking of Congress, how do you put up with those self- serving monologues from committee members that pass as questions without saying, “Go stuff it?”
4. What keeps you up at night: concern about deflation or tulip bulbs -- and I’m not referring to the state of your garden?
5. Your predecessor, Alan Greenspan, prided himself on his ability to obfuscate. Today transparency is the rage. Has the art of central banking changed enough in the past two decades to justify the Fed’s 180-degree turn?
6. The Fed lowered its benchmark rate to a range of 0 to 0.25 percent in December 2008. Zero was considered appropriate at a time when the economy was hemorrhaging jobs, credit markets were frozen, banks were on the verge of insolvency and panic was in the air. If zero was the correct setting for the economy then, how do you justify it now?
7. In your widely quoted 2002 speech, “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” you explained that the Fed has “a technology called a printing press that allows it to produce as many dollars as it wants at essentially no cost.” In December 2010, you told “60 Minutes” correspondent Scott Pelley that the Fed was not printing money. Please discuss.
8. The “extended period” language in the Fed’s statements about low interest rates was designed to anchor market rates. How do you expect to remove it and hint at the long process of normalizing rates without upending the markets? Do you have economists -- or etymologists -- working on this issue?
9. A dollar today buys only 45 cents worth of the goods and services it bought in the early 1980s, according to the Bureau of Labor Statistics. Can you explain why, in a time when prices are supposedly stable, the dollar has lost half its purchasing power?
10. Do you attach any significance to the fact that the security identification number on the Treasury’s new two-year note, auctioned this week, ends in QE3?
In answering the questions he did get, Bernanke reiterated his belief that the current rise in inflation is transitory, a result of higher food and energy prices, not the Fed’s overly aggressive monetary policy. Which brings me to one last question: What if you’re wrong?
(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)
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