Thursday, April 28, 2011
On Wednesday, at the first live public news conference ever given by the Federal Reserve (Fed), Federal Reserve Chairman Ben S. Bernanke explained the US central bank’s recent policy to a small group of reporters and answered some questions.
The conference was conducted two hours after the release of a report by the Fed’s policymaking committee, the Federal Open Market Committee outlining its policies decided the day before. Until 1994 the Fed gave no information about the policy decisions made in its meetings pertaining to short-term interest rates and other policies. The public was left to guess what decisions were. In 1994 the Fed began issuing brief reports.
Unlike the US, the central banks in Europe, Japan, Canada and other countries have regularly meetings with the press after making such policy decisions.
The public has increasingly been aware of the secretive practices of the Fed, especially after its unprecedented intervention with massive bailouts of large financial institutions during the recent financial crises.
At Wednesday’s meeting, it was decided that the Fed would maintain near-zero interest rates to stimulate the economy. It announced that it plans to end its program of buying back treasury bonds by the end of June, a program receiving criticism from Republicans concerned about the budget deficit.
Bernanke’s exchange with reporters, called “historic” by the Los Angeles Times, was the first of a series of regular news conferences planned to be held quarterly by Bernanke to provided the Fed with more transparency. He was cautious in his remarks. He made no news but explained in general terms the Fed’s policy.
He said the Fed is attempting to revive the US economy by creating jobs and keeping inflation low.
“The trade-offs are getting less attractive at this point,” Bernanke said. “Inflation has gotten higher … it’s not clear we can get substantial improvements in payrolls without some additional inflation risk.”
|Unfortunately, the reason we use this vaguer terminology is we don’t know with certainty how quickly response will be required.|
During the conference, Bernanke said he recognized that the average American was unhappy with the increasing inflation and the slow job growth, but said the Fed projected that long-term inflation will remain stable while he acknowledged the effects of the short-term price increases which he said were driven largely by the increase in the price of oil.
“There’s not much the Federal Reserve can do about gas prices, per se, at least not without derailing growth entirely, which certainly is not the right way to go,” Bernanke said. “After all, the Fed can’t create more oil.”
When asked by reporters to explain his vague answers, he gave general replies. For example, when asked to clarify the Fed’s intention to maintain near-zero interest rates for an “extended period” he said the wording suggested this period would probably continue through a couple more policymaking meetings at least.
“Unfortunately, the reason we use this vaguer terminology is we don’t know with certainty how quickly response will be required,” he said.
Diane Swonk, chief economist at Mesirow Financial, said of Bernanke’s performance at the press conference, “He was well-prepared and did exactly what he wanted to do – do no harm.”