Bernanke’s Drive for Openness May Include More Briefings by Fed: Economy
Federal Reserve Chairman Ben S. Bernanke could double press briefings to improve understanding of policy changes that may include signaling interest rates will stay near zero longer, economists said.
Adding briefings “is a viable option because Bernanke has been an effective communicator” of policy aims, said Sam Bullard, senior economist at Wells Fargo Securities. Fed officials may also replace their pledge to keep the benchmark rate close to zero through mid-2013 with a description of circumstances under which rates would rise, said Keith Hembre, chief economist at Nuveen Asset Management in Minneapolis.
Boosting the frequency of press conferences would give Bernanke more opportunities to explain shifts in policy and the Fed’s outlook for the economy. The Standard & Poor’s 500 Index fell 6 percent over two days following the Fed’s statement in September that the economy faced “significant downside risks,” an assessment that wasn’t followed by a more detailed explanation.
“He is a good teacher,” said Diane Swonk, chief economist in Chicago at Mesirow Financial Inc., which oversees about $59 billion in assets. “This is his strength.”
Fed policy makers may decide on changes as soon as their two-day meeting ending Jan. 25, the first of the year, when Bernanke gives a press conference a few weeks ahead of his semiannual testimony to Congress.
While adding press conferences isn’t one of the options mentioned in minutes of Fed discussions of the new communications strategy since September, Swonk said she wouldn’t be surprised if policy makers took such a step.
Bernanke and his colleagues are trying to protect the U.S. from fallout from the European debt crisis. Reports today showed Japan’s industrial production, retail sales and consumer prices excluding fresh food all fell in November, while Switzerland’s forward-looking economic indicator dropped to the lowest in more than two years this month.
The S&P 500 Index, while up 18 percent through yesterday since touching a 2011 low on Oct. 4, has gained less than 1 percent this year, on pace for the worst annual performance since 2008.
Fed policy makers meet eight times a year. The Fed announced last March that Bernanke, 58, would hold press conferences four times, following each two-day meeting, where governors and regional presidents present revised projections for economic growth, inflation and unemployment. Bernanke has since answered media questions three times: in April, June and November. The Fed doubled the frequency of forecasts in 2007 to four from two.
Left a Gap
The calendar left a gap this year when resurgent turmoil in Europe and the debate over raising the U.S. debt limit helped lead to increased volatility in financial markets and slower- than-anticipated U.S. economic growth.
Fed policy makers in August decided to replace their statement that interest rates would stay very low for an “extended period” with a date of at least mid-2013. In September, they agreed to replace $400 billion of short-term debt with longer-term securities in a move dubbed Operation Twist.
When the Fed in August 2010 reversed plans to exit from record stimulus, stocks initially fell for four straight days, in part on a lack of information about the Fed’s objectives, analysts said at the time.
Fed policy makers are debating two kinds of changes to their public communications: how to express the length of time that interest rates will stay close to zero, and how to articulate a long-term strategy for monetary policy that may include objectives for inflation and employment, according to minutes of the Nov. 1-2 Federal Open Market Committee meeting.
Some officials wanted to replace the pledge to keep interest rates near zero until at least mid-2013, which was enacted in August, with language specifying a period of time, according to records of the FOMC meeting.
Some FOMC members leaned toward additional easing, the minutes said. Chicago Fed President Charles Evans has been the most vocal official in saying the central bank should keep rates low until inflation or unemployment reach specified levels.
Also, a majority of officials last month “agreed that it could be beneficial” to publish a statement on the Fed’s policy approach and discussed the pros and cons of such strategies as an explicit numerical inflation goal, something used by the European Central Bank and Bank of England. The complication for the Fed is its added legal mandate of fostering maximum employment, the minutes show.
In addition, “participants generally expressed interest in providing additional information to the public about the likely future path of the target federal funds rate,” the November minutes said.
While it isn’t clear the Fed would double forecasts to eight times a year, “there certainly is a strong argument to made for increasing the frequency,” Maki said. Additional press conferences are likely to be part of such a change, “but we haven’t heard anything from them that they’re thinking this,” said Maki, a former Fed researcher.
Maki said publishing the interest-rate forecasts “could come as soon as January,” or sometime in early 2012.
David Skidmore, a Fed spokesman, declined to comment on potential changes to central bank communications.
Recent data, including jobless claims and housing starts, indicate the expansion is accelerating. Such improvements don’t necessarily mean the Fed will want to shorten its commitment to record-low interest rates.
‘Some Point Beyond’
The Fed chairman said at his Nov. 2 press conference that the FOMC statement “says at least mid-2013” and that “clearly it could well be some point beyond that.”
The U.S. economy will probably grow at a 3.6 percent rate during the fourth quarter, Macroeconomic Advisers, a St. Louis- based forecasting company, said in a Dec. 23 note. That would be the fastest rate since the second quarter of 2010 and double the third quarter’s 1.8 percent growth.
Extending near-zero interest rates would “run a little bit counter to the improved tone of economic data over the course of the last couple of months,” said Hembre, a former Minneapolis Fed researcher who also serves as chief investment strategist at Nuveen, which oversees about $207 billion.
While Bernanke already has a press conference scheduled for January, having more briefings would help the public understand the Fed’s strategy, said John Ryding, chief economist and co- founder of RDQ Economics LLC in New York.
“If you’re trying to communicate, then to me that would be a sensible step,” said Ryding, a former researcher at the Fed and Bank of England.
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