Quick lesson on power of words.
New Fed chair sees what power her words carry
“In many ways, I feel the buck stops with me.”
Janet Yellen, new Fed chair
WASHINGTON When Janet Yellen stepped to the podium for her first news conference as Federal Reserve chair on Wednesday, she had something to prove.
Not because she’s the first woman to lead the world’s most powerful central bank in its 100year history.
But because she has been widely labeled a “dove.”
In Fedspeak, a dove is someone who cares more about lowering unemployment than heading off potential inflation, and so is more likely to keep interest rates low to spur economic activity. A hawk is the opposite — a policymaker more inclined to raise rates sooner because of the fear of inflation.
With the economy and job market improving but still far weaker than normal nearly five years after the end of the Great Recession, Yellen has a twofold mission. She has to prove her inflation-fighting bona fides while assuring those sensitive financial markets that low interest rates aren’t going away anytime soon.
Yellen, who pushed the Fed to increase public communication while serving as vice chair to former Fed chief Ben Bernanke, generally achieved those aims, calmly and affably providing grist for doves and hawks alike.
But she also learned how easily her words can move markets. When she suggested, perhaps inadvertently, that short-term interest rates may rise sooner than most economists expect, she sent stocks swooning.
Fed news conferences are a relatively new phenomenon, started by Bernanke in 2011 in an effort to make the often cryptic ways of the Fed more accessible. The Brooklyn-born Yellen appeared nervous. As she entered the press room to a blaze of lights and whirring cameras, she seemed to stumble slightly as she ascended to the podium.
While Bernanke was, by turns, professorial and genial with reporters, Yellen was matter-of-fact as she met the news media after presiding at her first Fed meeting. Always meticulous in her preparation, she read stiffly from her statement. But then Yellen took off her glasses and settled into a comfortable back-and-forth with reporters.
Yellen has often said that she became an economist to help people, and that was palpable. She said that “unemployment and long-term unemployment remain significant concerns, concerns that are hardly theoretical.
Stubborn long-term unemployment is a big reason why Yellen wants the Fed to keep short-term interest rates near zero after the Fed likely ends its monthly bond-buying stimulus program later this year.
Yellen also had encouraging words for the hawks, noting the job market has improved enough for the Fed to continue to wind down its bond buying.
Her balancing act got a bit wobbly when she was asked to clarify the Fed’s statement that short-term rates would remain low for “a considerable time” after the bond-buying ends. Yellen said a considerable time could mean six months, a shorter period than many economists anticipated. Markets rapidly plunged.
Economist Paul Edelstein of IHS Global Insight called it “a rookie gaffe.” UBS’ Maury Harris said Yellen may have sent investors mixed messages.
It was a quick lesson for Yellen about the market-rattling potential of even her most offhand comments.
But the new Fed chief seems ready to take responsibility. “In many ways,” she told reporters, “I feel the buck stops with me.”