An economic revolution comes late Down Under
THE Reserve Bank of Australia (RBA), once the envy of the world for presiding over a three-decade economic expansion, has hurtled back to earth.
The first external review of the bank in a generation urged officials to undertake a reform that’s commonplace for monetary authorities across the globe, but which the RBA had fiercely resisted.
Crazy as it sounds, having a press conference after a meeting to set interest rates is groundbreaking Down Under.
So for the first time, an Australian central bank chief will make it a practice to face the media following a rate decision.
Today is the big debut. That this is seen as a big deal speaks to how far behind best practice the authority had fallen. This is Communications 101.
New governor Michele Bullock should use the moment to enhance the message from the formal rate statement, not embark on a new tack or get distracted by issues that are unhelpful or guaranteed to create a storm.
Whether the bank likes it or not, talk is now a critical part of the policy game.
More than two decades of watching central bank press conferences – and my own appearance before Congress in 2012 – taught me that there’s no substitute for a murder board.
I hope that Bullock’s team has fully rehearsed probable questions, with different staff members playing reporters who closely follow the bank.
Before former Federal Reserve (Fed) chairman Ben Bernanke made his debut, he consulted widely with central bank chiefs and sought their advice on do’s and don’ts. Try not to be too dry. Demonstrate mastery of the subject, but avoid jargon.
Given the way most Australian mortgages are tied to the RBA’S rate, Bullock should assume soundbites and video clips will figure prominently on the evening news.
Her audience goes well beyond the cognoscenti. (The RBA very occasionally conducted briefings in the past when unveiling a major shift, not as a matter of course.)
Showing a little empathy can be be good.
Former Bank of Japan governor Haruhiko Kuroda saw a certain tactical value in shock, but he went too far in July 2018 when he began his post-meeting press conference by announcing the new trading range for government debt. Stocks sank, the yen fell and bond yields ground lower.
Wim Duisenberg, the first head of the European Central Bank (ECB), became famous for news conference gaffes during his term that began in 1998. It wasn’t so much the guts of what the Dutchman said, but his language.
When asked whether he was indifferent to the businesses and consumers clamoring for a rate cut amid a deteriorating economy, Duisenberg responded: “I hear but I do not listen.”
On another occasion, his attempt to play down fears of inflation with an everyman approach that backfired.
A convoluted description of a visit to Mcdonalds and his perceptions about the cost of hamburgers and milkshakes ensued. He acquired the nickname “Dim Wim.”
Another key lesson: Don’t spring surprising and consequential details that aren’t in the statement on the journalists.
Former Bank of Japan governor Haruhiko Kuroda saw a certain tactical value in shock, but he went too far in July 2018 when he began his post-meeting press conference by announcing the new trading range for government debt. Stocks sank, the yen fell and bond yields ground lower.
Resist getting drawn into fiscal issues or other areas that politicians jealously guard.
Successive Fed chairs have, when asked budget questions, limited themselves to describing the impact a deficit is having – based on policy as it now stands. Don’t get into the recommendation business.
Alan Greenspan was perceived, through a nuanced answer to a lawmaker’s question, to have endorsed George W. Bush’s tax cuts in 2001.
His comments caused an uproar. Bernanke and Janet Yellen did their best to stay away from the topic, as has current chair Jerome Powell.
With Prime Minister Anthony Albanese under fire for breaking election promises on tax, Bullock is almost certain to be quizzed on this. She has hopefully seen it coming and committed her answers to memory. The RBA has historically held that more talking doesn’t necessarily lead to better policy or a superior understanding of actions.
That’s true – to an extent. Many ECB, Fed and Bank of England folks are attracted to microphones and some of their verbiage often appears contradictory. But this is because listeners are failing to discern who really matters and who is a backbencher.
Journalists have a big role if this new world is to work: Report what Bullock and others say with context and explain what is genuinely new.
Qualifiers around seemingly declarative sentences matter greatly. Bullock’s predecessor Philip Lowe is correct when he insists that he didn’t promise rates would stay low until 2024 and that the guidance always came with caveats, but most people just heard a hard deadline.
Some of the most memorable – and useful – phrases in modern economics have come from outside press conferences: Former ECB chief Mario Draghi’s celebrated “whatever it takes” line was contained in a speech in London.
So what would make Bullock’s debut a success?
She might hope the event passes quickly from memory. That would be a win. Time Magazine, reviewing Bernanke’s debut in 2011, likened it to an episode of Seinfeld, the TV show often described as being about nothing.
That made the central banker’s performance a win. The RBA boss, still in her first months on the job, should be so lucky.