On Wednesday, the Federal Reserve is expected to hold its first ever post-policy meeting press conference. The financial community largely expects Fed Chairman Ben Bernanke to reiterate his well known positions and essentially regurgitate the March FOMC statement.
The following is what DBS Group Research had to say:
- Bernanke is not going to tell us much new in his first post-FOMC briefing
- On the growth front, he could soften his tone, but is still likely to reassure markets that the recovery is gaining hold.
- On the inflation front, with annual core inflation measures still at the bottom of the Fed’s 1-2 percent comfort zone, he will likely maintain that “measures of underlying inflation continue to be somewhat low” and that “longer-term inflation expectations have remained stable.”
- Overall, his assessment of economic conditions and outlook will mean that the Fed will continue with QE2, as improvements in the labor market do not yet suggest that the recovery is truly established and recent increases in inflation rates are due to higher commodity prices and not underlying inflation.
What is motivating Bernanke to start this new tradition?
He probably isn’t trying to announce a new policy or view (he can just do that in the FOMC statements), so analysts are probably correct in predicting that he’ll largely repeat the March FOMC statement.
Instead, it’s likely a genuine effort continue to increase the transparency of the Fed.
The “old school” style of central banking was to be purposely opaque, mask the central banks’s intentions, and then announce policy changes without warning.
Academic research, however, has shown that transparency is a better way to go. The Federal Reserve, therefore, has become increasingly transparent over the years.
For example, before 1967, the FOMC meeting minutes weren’t even released to the public. In 1967, it was released with a 90 day lag. The lag was reduced to 45 days in 1975, 30 days in 1976, and three weeks in 2004.
Bernanke’s introduction of the Federal Reserve press conference, therefore, is just another step towards transparency.
However, there may be another reason Bernanke is introducing it.
His program of QE2 has proved to be a highly controversial issue. It has been openly criticized and mocked by many weighty voices. Perhaps the most stinging comment was made by German finance minister Wolfgang Schaeuble, who said QE2 was a “clueless” policy that won’t revive growth.
People in the PR profession know that the worst thing one can do in the face of harsh criticisms from legitimate sources is to remain silent.
Previously, that’s precisely what Bernanke had to do. Now, from the podium of the Federal Reserve press conference, he can strike back.
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