Bernanke briefing could be political boon for Fed

WASHINGTON Thu Apr 21, 2011 7:03am EDT

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke's historic decision to hold news briefings may help inoculate the U.S. central bank from political meddling, while offering financial markets more clarity on monetary policy.

Bernanke holds the first regularly scheduled briefing by a Fed chief in the central bank's 97-year history next Wednesday, kicking off what is to be a four-times-a-year event.

The news conferences will allow Bernanke to demystify the notoriously secretive Fed, which has faced sharp criticism for its unconventional crisis-fighting efforts.

Over 45 or so minutes of give and take with reporters, the former economics professor will also be able to explore details of the terse policy statement the Fed's policy-setting Federal Open Market Committee will have delivered shortly beforehand.

By speaking immediately after the FOMC statement, Bernanke will steal the march on other chatty, and sometimes contrarian, Fed speakers in providing the nuance that the brief statement lacks.

At times, comments from officials whose views are outside of the Fed's consensus have moved financial markets. The briefings could improve the effectiveness of Fed policy by making sure markets are in sync with the central bank.

Even though media briefings have been under consideration by the Fed for some time, they may be particularly timely now as officials gear up to exit from the massive support they have provided the world's biggest economy.

"By laying out a smooth trajectory, the hope is that it would minimize disruptions and prevent an overreaction," said Kenneth Kuttner, a former Fed economist who teaches at Williams College, and who has co-authored research with Bernanke on how markets react to monetary policy changes.

The decision to brief the media brings the Fed into line with many other major central banks, including the European Central Bank and the Bank of England, whose leaders brief the media after policy meetings.

LESS TEMPLE-LIKE

The Fed has faced withering second-guessing over its actions in the run-up to and during the 2007-2009 financial crisis, which resulted in the loss of more than 8 million U.S. jobs and bank repossession of around 3 million homes.

As Congress debated financial regulatory reforms last year, lawmakers considered sharp cuts to the Fed's authority. Bernanke's own re-confirmation to a second four-year term as chairman became a referendum on the institution, and he won the Senate's needed backing only in the face of stiff opposition.

The Fed's latest program to boost a stumbling recovery with $600 billion in bond purchases was met with fresh indignation. Lawmakers worried the Fed was sowing the seeds of inflation and proposed measures to strip the central bank of its mandate to spur growth and to make it focus solely on price stability.

Bernanke stepped up public appearances to explain Fed policies, giving interviews to the popular "60 Minutes" news show and speeches at the National Press Club after which he answered reporters' questions handed to the dais on cards.

The Fed launched a review of its communications policies last year after a report exposed internal deliberations on policy that showed greater dissent than was apparent in the central bank's public statement.

Putting Bernanke in front of the public right after policy meetings will offer a clear, guiding voice amid the cacophony of views. Bernanke is known to have the final say on policy no matter how fractured the debate.

"The Fed has an opportunity in the press conference to explain its strategy and the reasoning far, far more completely than it ever could in the policy statement," said former St. Louis Federal Reserve Bank President William Poole.

The sessions will also give the Fed a chance to show itself as accountable to the public and counter its image as an institution that manipulates the world's largest economy from behind closed doors.

"I think they wanted to be a little less temple-like," said Michael Feroli, a former Fed economist now with JPMorgan.

The Fed's display of independence and power throughout the crisis and its aftermath stirred calls to subject its actions to congressional review. Politicians such as Texas Representative Ron Paul, whose calls to eliminate the Fed had been seen as a fringe view, have gained new prominence.

News conferences will give the plain-spoken Bernanke a chance to air his side of the story.

(Reporting by Mark Felsenthal; Editing by Jan Paschal)

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