Ben Bernanke used his second-ever news conference on Wednesday to teach the world's financial markets a lot more about the thinking at the Federal Reserve than they could glean from its usual statements.
But the Fed chairman and former Princeton professor has yet to face one of the most important oral exams of his career: justifying and defending a change in the Fed's extraordinary monetary policy, when the time comes.
There haven't been any big surprises or shifts in policy for Bernanke to sell, Paul Ashworth, chief U.S. economist at Capital Economics said on Thursday.
When this will earn its money is when the market response to the (earlier) statement is one way and he is able to correct any misperceptions. That will be when the press conference really pays off.
Bernanke's news conferences mark an important departure from the Fed's approach to communications that for decades used to put a premium on secrecy.
The Fed's focus is now on clarity after the its decision last year to embark on a second $600 billion round of bond-buying touched off a political firestorm with politicians accusing the central bank of jeopardizing the U.S. dollar with its bold experiments in monetary policy.
Looking less nervous than in his first news conference in April, Bernanke took questions from reporters for an hour on Wednesday and, displaying his professorial background, sounded confident and calm in his answers.
Bernanke's former number two said the gamble of exposing the world's most important monetary policymaker to the glare of the media was worth taking, given how hard it was to defend the Fed against the barrage of criticism over recent policy moves.
I thought the circumstances were sufficiently unusual and the Fed was being sufficiently misunderstood and misinterpreted that giving the chairman another shot, another couple of shots of explaining what the Fed was doing was very much worth the risk of an occasional misstatement or distraction, Former Fed Vice Chairman Donald Kohn told Reuters in an interview.
On Wednesday, Bernanke and the top Fed officials kept interest rates near zero and, using the same language they have for two years, said they will stay exceptionally low for an extended period.
Asked exactly how long that is, Bernanke said at least two to three meetings ... and I emphasize at least.
That unusually precise answer, for a central banker, helped calm financial markets worried about the slow pace of the U.S. economic recovery, said Todd Colvin, a futures broker at MF Global in Chicago.
Short-term U.S. interest rates are expected to stay below 1 percent until August 2013, according to futures trading on Thursday.
Bernanke also used the hour-long news conference to calm fears that inflation is getting out of hand, ahead of a hawk-heavy line-up of top Fed officials speaking next week that includes Minneapolis Fed President Narayana Kocherlakota and Kansas City Fed President Thomas Hoenig.
It's reasonable to think that core inflation will fall back toward mandate-consistent levels, Bernanke said on Wednesday.
At times last year, markets took their cues from the vocal hawks whose outspoken concerns that Fed policy would fuel inflation complicated attempts to create the sense of a Fed consensus that Bernanke now promotes.
It gives markets a better context in which to interpret what they are hearing later from other members of the Committee, Kohn said of Bernanke's news conferences. So I think it's a very positive development.
An analysis of Bernanke's comments show he talked more about unemployment on Wednesday than at his first news conference, signaling growing concern over the labor market (For a graphic please see: http://blogs.reuters.com/frontrow/2011/06/22/bernanke-thinks-more-about-unemployment/ )
(Former Fed Chairman) Alan Greenspan was famous for needing a secrete decoder ring for trying to understand what he was saying, said Michael Hanson, a senior economist at Bank of America/ Merrill Lynch in New York. I think Bernanke is much more willing to say what is on his mind.
While arguing that rising inflation leaves little scope for another round of stimulus, Bernanke listed several tools the Fed could use to ease monetary conditions further should it need to do so.
There were definitely things that one learns, said Michael Feroli, an economist at JP Morgan Chase.
(Reporting by Ann Saphir, with additional reporting by Mark Felsenthal in Washington and Alexandra Alper in New York)