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I just want to go on the record here: tomorrow’s heavily publicized, much ballyhooed Ben Bernanke press conference will ultimately be a nonevent.
Oh, sure it’s notable that the Fed chairman is going to hold a press conference. The Fed’s never held a press conference before, with the chairman taking questions from the press. It’s a move toward a more “transparent” central bank, and is certainly welcome. Back in the day, the Fed was far more opaque, and the tea-leaves readers really had their work cut out for them.
That said, it’s hard to imagine that there’ll be some kind of drama like, say, at the end of “A Few Good Men,” some kind of forced admission out of Ben Bernanke.
“You want answers?”
“I think I’m entitled.”
“You want answers?”
“I want the truth!”
“You can’t handle the truth!”
I don’t doubt the ability of my colleagues in the Fourth Estate to ask the hard questions. I just don’t think Bernanke will answer them; or rather, he’ll give the answer he wants to give, rather that the one sought by the question. This is a pretty simple trick, really; you just say what you’d planned to say, and move on to another question. Besides the theatrics don'tP really matter. What matters, still, isn’t so much what the Fed says. It’s what the Fed does.
For some time now, the Fed has been generally upbeat about the economy and its prospects, while bemoaning the unemployment rate and reminding everybody that “risks” remain to the recovery. Meanwhile, it’s kept the fed funds rate, the key short term rate, at essentially zero for more than two years, something it’s has never, ever done before.
The idea behind low interest rates is it spurs people and businesses to take on loans and debt with an eye toward some kind of useful business activity. When the Fed wants to goose the economy, it lowers rates. When it worries the economy’s overheating, it raises them. This is basic stuff.
But with the Fed holding interest below the rate of inflation, it is essentially giving money away, making it almost literally free. Would the Fed do that if it had any faith in the economy's strength? This is a perilous course to take; the previous Fed chairman, Alan Greenspan, cut rates to only 1% in 2002, and look where that got us.
Forget the bond-buying business for a moment, the quantitative easing. The Fed has interest rates pinned to the floor, and nobody expects it to begin raising rates until next year. Once they start, it will likely be some years before it gets rates back to even a neutral state, forget something that could be considered restrictive.
So long as the Fed is running monetary policy this loose, it tells me the central bank is still gravely concerned about the state of the economy, no matter what gets said at the press conference tomorrow.
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I can’t disagree with Vigna’s opinion here. I’m really confused what kind of strategy Bernanke thinks he’s applying here. If anything this press conference will only more fully illustrate Bernanke has been going to the Obama school of avoiding direct answer through obfuscation
nicely said
I loved that image of Jack Nicholson, I also loved him in Cukoo’s Nest. I believe there is a relationship to the two movies regarding the Fed’s policy. In one movie he was bluntly telling us what we could handle– more lies. In the other movie he told us he was tired of the lies when he threw the toilet out the window. Nurse Rached ( pronounced as Rats**t) working the nest was able to keep the community sedated with lots of injectables. I see the Fed doing the same thing , only its cash injections. So somewhere between these two movies lies the philosophical truth on the current state. I suggest we ratchet it up a notch but not as far as throwing the toilet threw the window. Lets just flush it along with the rest of the waste products being infused upon us.
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