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Federal Reserve policymakers last week stunned the world by saying they’re not ready to reduce the central bank’s $85 billion-a-month bond-buying program. Since then, investors haven’t stopped complaining about how they were misled by Chairman Ben Bernanke.
But they obviously haven’t been paying attention. For months now, Bernanke has been saying the same thing after every Federal Open Market Committee policy meeting and in every Congressional appearance. He has been crystal clear that the central bank will eventually reduce monetary stimulus, but only when the economy is ready for it.
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| Ben Bernanke has been the most transparent Fed chairman ever. |
Bernanke, who’s been the most transparent Fed chairman ever, told us the targets for the jobless rate and economic growth he’d use to determine when that time has come. If you take even a passing interest in the economy, you’d know that neither of those conditions has been met. So why was everyone so convinced that the Fed would start tapering?
Adapting to the Bernanke Era
The truth is that even though Bernanke has been in office for seven years, investors still think they’re dealing with his predecessor, Alan Greenspan.
Greenspan prided himself on his inscrutability. Investors, economists and Fed watchers would parse his every utterance for clues about monetary policy. Greenspan seemed to think his job was obfuscation, and that only those with the sharpest ears should be able to decipher his code.
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| Alan Greenspan seemed to think his job was obfuscation. |
In that sense, Bernanke is the anti-Greenspan. From the day he took over as Fed chairman, he has tried to make the policy-making process as open as possible. While Greenspan remained silent whenever he could, Bernanke has made it standard practice to hold press conferences after FOMC meetings, and has even released the minutes to those meetings to give us a peek at the Fed governors’ deliberations.
In fact, Bernanke has been so open and honest that he’s found himself without any friends left. He’s like the guy who becomes unpopular because he can’t stop telling the truth.
But the media and the investing public still haven’t gotten over the Greenspan era. They continue to make their jobs much harder than they should be. They have to get it through their heads that the parlor game is over.
The irony is that the Bernanke era is almost over too, as he prepares to step down in a few months. Let’s hope that the openness he instituted continues under his successor.
Best wishes,
Douglas
