Bernanke tightens hold on Fed message against hawks
Ben S. Bernanke is tightening his control of Federal Reserve communications to ensure investors hear his pro-stimulus message over the cacophony of more hawkish views from regional bank presidents.
The Fed chairman will cut the time between the release of post-meeting statements by the Federal Open Market Committee and his news briefings, giving investors less opportunity to misperceive the Fed's intent. In recent presentations, he has pledged to sustain easing, defending $85 billion in monthly bond purchases during congressional testimony last month and warning that "premature removal of accommodation" may weaken the expansion. Ben S. Bernanke, chairman of the U.S. Federal Reserve. Bernanke's push to continue record stimulus faltered with the Jan. 3 release of minutes from the FOMC's December meeting, which said several officials favored slowing or stopping bond buying well before the end of 2013.
"Bernanke rightly views it as imperative to get out in front of any movement to quickly pull away from stimulus, and to signal that to markets," said Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore who worked at the Fed's division of monetary affairs from 2004 until 2008. Bernanke "felt he needed to take the wheel" of communications to dispel any misperception that the Fed will end bond purchases too soon.
Bernanke's push to continue record stimulus faltered with the Jan. 3 release of minutes from the FOMC's December meeting, which said several officials favored slowing or stopping bond buying well before the end of 2013. The yield on the 10-year Treasury note rose that day about 0.07 percentage point to 1.91 percent, the highest since May.
In his congressional testimony Feb. 26 and 27 and a March 1 speech at the Federal Reserve Bank of San Francisco, Bernanke promoted the Fed's bond purchases, saying stimulus shouldn't be slowed by financialstability concerns. Vice Chairman Janet Yellen echoed those views March 4.
The Fed chairman wants to avert an unintended rise in Treasury yields that would undermine his unprecedented efforts to reduce long-term interest rates and speed growth, including the rebound in vehicle sales and housing, said Nathan Sheets, the Fed's top international economist from 2007 until 2011.
"If long rates rise because of a misunderstanding of the Fed policy path, that is something that is worrisome and that is something they want to clarify," said Sheets, now global head of international economics at Citigroup Inc. in New York. "Lower rates are absolutely supporting the recovery and stimulating the housing market, autos and durable goods."
Several FOMC participants
have strayed from Bernanke's line during the past year. Richard Fisher, president of the Federal Reserve Bank of Dallas, said he saw no need for more stimulus on Aug. 8, about a month before the central bank started a third round of quantitative easing.
"We keep applying what I call monetary Ritalin to the system," he said in an interview on "Bloomberg Surveillance" with Tom Keene and Sara Eisen. "We all know there's a risk of over-prescribing."
Philadelphia Fed President Charles Plosser said on Aug. 30 that the potential disadvantages of additional securities purchases outweighed the benefits.
"Increasing accommodation creates risks, and we need to balance those," he said in an interview with CNBC at the Fed symposium in Jackson Hole, Wyoming.
Plosser, Fisher and Richmond Fed President Jeffrey Lacker are the most "hawkish" FOMC participants, calling for a comparatively aggressive approach to fighting inflation, and aren't "signals" for future committee action, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.
"The committee is increasingly a democracy, and if you have one-fourth of the votes, you're not going to steer policy," said Feroli, a former Fed researcher. The 12 district bank presidents have five votes on the 12- member FOMC, with the New York Fed president holding a permanent position and the others annually rotating onto the panel.