Taking Questions: A New Move For Fed Transparency

Apr 27, 2011
Originally published on April 27, 2011 2:06 pm

The Federal Reserve will take some extraordinary action Wednesday when, for the first time in the central bank's history, its chairman will hold a full-fledged press conference.

Ben Bernanke's afternoon appearance before reporters marks the start of what looks to be a permanent shift. The Fed is hoping to hold a press conference once every three months as it aims to explain itself better to the American public.

For some people, Wednesday's conference is a bigger media event than the royal wedding.

Alan Blinder might be one of them. A former Fed vice chairman, Blinder pushed for more openness at the Fed. He thinks press conferences are a good idea.

"I think the Fed has a good story to tell and very little to hide," Blinder says. "It's given the impression to a lot of people that it has a lot to hide, so I think [the conference] can do some good in that domain. On the other hand is it going to get Ron Paul to stop worrying and love the Fed? I doubt it." Rep. Ron Paul (R-TX) has called for abolishing the Fed.

Vincent Reinhart, a former Fed official, says the central bank's decision to hold press conferences is partially a response to criticisms spawned by the financial crisis, when the government rescued Wall Street firms that it said were "too big to fail."

"But when they say too big to fail, a lot of people hear, 'I'm just too little to be helped,' " he says. "The Fed is seen as an instrument of tilting the playing field in favor of the big guy."

While explaining that the Fed's response to the recent crisis might be part of the impetus behind the press conferences, Reinhart says the Fed has actually been on a nearly 20-year journey toward greater transparency. Before that, Fed chairmen were often intentionally opaque.

The Fed's approach to communicating a couple of decades ago was labeled "constructive ambiguity." It was thought that policy changes could be most effective if the markets were surprised by the Fed's moves. But that changed midway through Chairman Alan Greenspan's tenure. The idea now is that the Fed can do better by making its intentions clearer to the markets.

Blinder says, though, that press conferences certainly won't solve all the Fed's communication problems — and there are some risks.

"A central banker will occasionally make a slip and not put something artfully, and be misinterpreted, and so on," he says.

But central bankers in the United Kingdom, the European Union, Japan and Canada all hold regular press conferences, and Blinder says research indicates these events have a positive impact.

Reinhart says the press conferences will very likely give Bernanke more power to frame what happens at the Fed meetings, which will precede each press event.

That disclosure, Reinhart says, is likely to weaken the arguments of dissenters. This new mode of Fed communication could be particularly valuable in the coming months as the central bank ends its huge economic stimulus, known as quantitative easing, and begins the unpopular task of raising interest rates.

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

STEVE INSKEEP, Host:

NPR's John Ydstie reports.

JOHN YDSTIE: It may come as a surprise, but for some people, there's a bigger media event this week than the royal wedding.

ALAN BLINDER: Definitely, which shows what a strange world I live in, the first news conference by a Fed chairman.

YDSTIE: Do you know what day the royal wedding is?

BLINDER: I do. Friday.

YDSTIE: Alan Blinder has an excuse. He's a former vice chairman of the Federal Reserve who has pushed for more openness at the Central Bank. He thinks press conferences are a good idea.

BLINDER: I think the Fed basically has a good story to tell and very little to hide. But it's given the impression to a lot of people that it has a lot to hide, so I think it can do some good in that domain. On the other hand, is it going to get Ron Paul to stop worrying and love the Fed? I doubt it.

YDSTIE: Vincent Reinhart, a former Fed official, says the Central Bank's decision to hold press conferences is partially a response to criticisms spawned by the financial crisis, when the government rescued Wall Street firms that it said were too big to fail.

VINCENT REINHART: But when they say too big to fail, a lot of people hear: I'm just too little to be helped. And so the Fed is seen as an instrument of tilting the playing field in favor of the big guy.

YDSTIE: While explaining its response to the recent crisis might be part of the impetus behind the press conferences, Reinhart says the Fed has actually been on a nearly 20-year journey towards more openness. Remember, there was a time when Fed chairmen, like Alan Greenspan, were intentionally opaque.

ALAN GREENSPAN: Should these trends toward supply and demand balance persist, the ongoing need for ever-rising imports and for a further draining of our limited labor resources should ease or perhaps...

YDSTIE: Well, you get the idea. In fact, the Fed's approach to communicating a couple of decades ago was labeled constructive ambiguity. It was thought that policy changes could be most effective if the markets were surprised by the Fed's moves. But that changed midway through Alan Greenspan's tenure, says Alan Blinder.

BLINDER: And Alan Greenspan was no longer making these famous or infamous statements which he had made before, like saying, well, if you understood what I meant, I must have misspoken.

YDSTIE: Blinder says press conferences certainly won't solve all the Fed's communications problems, and there are some risks.

BLINDER: A central banker will occasionally make a slip and not put something artfully and be misinterpreted, and so on.

YDSTIE: Mr. REINHART He gets to speak the week before anybody else gets to speak, because for the rest of the week, there's a blackout in which Federal Reserve officials are not supposed to talk to the public.

YDSTIE: John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.