WASHINGTON (Reuters) - A drawn-out selection process to choose the next head of the Federal Reserve may have hurt communication on monetary policy over the summer, a senior U.S. central banker said on Friday.
Fed Governor Jerome Powell acknowledged financial markets had been surprised when the central bank opted not to taper its bond purchase program last month, and conceded there had been a prolonged silence from policymakers ahead of the decision.
“It is fair to point out that there weren’t many major policy speeches in the last couple of months leading up to the nomination of Janet Yellen for the chair,” he said in response to a question. “So there was a time there when the leadership wasn’t speaking.”
President Barack Obama named Fed Vice Chair Yellen on Wednesday as his pick to replace Ben Bernanke at the central bank’s helm when his term expires on January 31.
The announcement ended an unusually public and protracted selection process which began after Obama unexpectedly disclosed back in June that Bernanke was ready to step down.
Fed watchers had thought the White House would stay quiet on the subject for as long as possible, in order not to undermine Bernanke’s position by making him a lame duck, even though it was widely presumed that he was ready to return to private life.
On top of that, the battle for the next Fed chair became national news when leaks made clear Obama wanted to choose his longtime advisor, former Treasury Secretary Lawrence Summers.
This ignited an ugly fight with members of Obama’s Democratic Party, who pushed back in favor of Yellen because they saw Summers as being too lax on financial regulation, and for remarks he made in the past that some viewed as sexist.
Summers withdrew from the race on September 15 after it became clear there were not enough Democratic votes on the Senate Banking Committee to support his nomination.
Days later, the Fed stunned markets with the news that it would continue buying bonds at an $85 billion monthly pace.
This flatly contradicted expectations that it would start to scale back the program, which officials had allowed to harden over the summer after Bernanke said in June that policymakers thought they might begin tapering later in the year.
There were ample subsequent speeches by other members of the Fed’s 19-member policy-setting committee, all putting their personal spin on what to expect in coming months. But there was no further commentary from either the chairman or Yellen.
That included the absence of any guidance from the top at the annual monetary policy symposium in Jackson Hole, Wyoming, in late August after Bernanke opted to skip the event, marking the first time in 25 years that a Fed chair did not attend.
In past years, Bernanke had used the keynote speech at the conference to give guidance on upcoming policy action.
Yellen was at Jackson Hole and presided over an important panel discussion. But she took great care not to say anything in public that could be construed as giving a hint on policy. Other conference participants viewed that as an clear effort not to hurt her chances of getting the top Fed job.
Defending the Fed against complaints of poor communication, Powell said markets had now gotten the message.
“I would like to push back against the narrative that the decision at the September meeting has damaged the Committee’s communications strategy,” he told the Institute of International Finance in his prepared remarks.
“We will continually strive to improve our communications and avoid surprises. But, at the end of the day, my own judgment is that market expectations are now better aligned with Committee assessments and intentions,” he said.
Reporting by Alister Bull; Editing by Chizu Nomiyama