By Taylor Griffin, April 27, 2011
Today the last holdout against the relentless march of the 24-hour news cycle will fall when Ben Bernanke steps to the podium at 2:15 pm for the Federal Reserve’s first press conference. Press conferences are a routine part of the Washington game for senior policymakers, but the Fed is a special case.
Every little thing he says is magic
The Fed has long cultivated a mystique that gives weight to its carefully crafted public pronouncements. Public communications are about more than public relations; they are an important tool of monetary policy. Bernanke chooses his words carefully to adjust market expectation and direct private markets towards its policy goals. To paraphrase The Police, every little thing he says is magic.
Through its public comments alone, the Fed is often able to achieve its policy objectives. Just the mere suggestion that the Fed may take an action can have the desired effect before the Fed even lifts a finger. It’s a neat trick. Bernanke’s most difficult task will be to pull it off when reporters are in the driver’s seat.
However, all this requires control. Press conferences are by nature raucous affairs that are about anything but.
Even the simplest off-hand remarks by a Fed Chairman can have profound implications. Bernanke received a tough lesson early in his term when stocks plunged after he made a casual remark about interest rates to CNBC reporter Maria Bartiromo at the White House Correspondent’s Association Dinner.
First, make no news
Bernanke’s newser will have the opposite goal of most press conferences. First, make no news. He’s got a great deal of practice doing this in monetary policy, and is likely to manage that dimension skillfully. Politics, however, is a different animal and one he’s less familiar with.
The Fed’s role in the response to the financial crisis has put it at the center of the political debate. With legislative proposals to assert further oversight over the Fed from Congress, this presents a very real threat to the Fed’s independence.
Complicating matters is the Fed’s dual mandate to maintain price stability while maximizing employment, two objectives that some see in conflict. Most Americans — and many Washington policymakers — see the goal of increasing inflation as always a bad thing, and harmful to job creation.
The Fed wants to appear to be serving both goals, but that’s no easy task. Comments made on the fly in a press conference, have a great risk of exacerbating this impossible position. Journalists have an incentive to fuel Bernanke’s unwelcome political career, it makes good copy. The Fed has an interest in staying far, far away. Navigating this successfully will be an impressive feat.
Bernanke will have a lot to accomplish today: steering clear of contentious political issues while mollifying critics; demonstrating transparency while maintaining the Fed’s independence and ability to jawbone markets; and satisfying a skeptical public that has very little understanding of exactly what the Fed does. To succeed, he’ll need all the powers of the “magical beard of obfuscation,” to borrow Ben White of Politico’s euphemism. We don’t envy him.
Taylor Griffin is a partner at Hamilton Place Strategies and a veteran of the Treasury Department and the last three presidential campaigns.