Tomorrow, the notoriously close-mouthed Federal Reserve is holding the first scheduled press conference in its entire history. As part of a push for transparency and public approval, Fed Chairman Ben Bernanke will now submit to media questioning four times a year, following meetings where the Federal Open Market Committee updates its economic outlook.
This is something of a radical change, by Fed standards, and a curious one. Until 1994, the Fed declined even to notify the public of policy changes, leaving an army of Wall Street "Fed watchers" to figure them out for themselves. The FOMC did not regularly release statements until 1999. Most Fed chairmen have tended to shy away from the cameras. Now, Bernanke is thrusting himself in front of them.
But the press conferences hardly imply the bank is headed for Oprah-type revelations. It remains an opaque, tea-leaf-manufacturing institution. In fact, the press conference itself seems designed to not make news. It is mostly a symbolic gesture.
The Fed tends to speak in carefully vetted policy notes, in prewritten speeches, in formal testimony, and in the very occasional interview or news conference. The financial markets analyze every Fed member and committee's words syllable by syllable, looking for insight and trading on the information. Conflicting or unusual responses tend to rattle markets. Bernanke, for instance, sent stocks plunging back in 2006 with an offhand comment made to Maria Bartiromo at the White House Correspondents' Dinner, a mistake for which he needed to apologize in a congressional hearing. He wants to avoid doing that again.
Even so, the mere prospect of the conference has earned the hyper-attention of the financial world. Goldman Sachs, for instance, put out a note calling the press conference a "watershed" moment and arguing it might provide "significant market-moving information beyond the policy decision itself." Goldman investigated the academic research on central bankers' press conferences. (They tend to amplify market movements, by the way.) And it concluded that "demeanor or 'body language' may matter as much for the perceived success of the press conferences as the technical precision of his answers." (Shoulders back, Ben!)
Though Bernanke, like chairmen before him, is highly skilled at not saying anything newsworthy, the timing of the first press conference will test even his mealy-mouth skills. It comes at a particularly sensitive time: shortly before the end of a controversial monetary policy program, and during a fierce argument over inflation. Bernanke and more-dovish members of the FOMC, such as Fed Vice Chairwoman Janet Yellen, have repeatedly argued that inflation remains subdued: Demand is slack, and core inflation below-target. But not everyone shares that view. More hawkish figures in the Fed, such as Thomas Hoenig of the Kansas City Fed, have pointed to frothiness in oil, food, and commodities markets to make loud calls for tightening.
And the Fed is in the process of ending its second round of "quantitative easing," or QE2. It is a fancy name for what amounts to a really big bond-buying initiative. The Fed cannot lower interest rates much further, so it needs to goose the economy in other ways. Quantitative easing lets the Fed buy bonds, paying for them by creating bank reserves ex nihilo, all with the intention of nudging banks to lend.
It is not clear the $600 billion plan has really benefited the economy. It has provided income for Wall Street and pushed down the value of the dollar, but GDP growth has slowed, the unemployment rate remains woefully high, and yields decreased less than anticipated. Bernanke has thus far stuck by it, saying, "These actions had the expected effects on markets and are thereby providing significant support to job creation and the economy" in a February speech. But the New York Times this week branded the effort "disappointing."
Reporters might call on Bernanke to answer economists' recent, harsh criticisms of the program. They might press him for details about how the Federal Reserve plans to end the program, as scheduled, in June. They will likely ask about inflation, and whether dissent in the Fed is getting louder. Furthermore, they might also press Bernanke about financial markets, or unemployment, or any of a dozen other issues.
But expect nonanswers, for the most part: The new openness goes only so far. The Federal Reserve is planning on having Bernanke make only a brief opening statement, to avoid contradicting the FOMC report. He does plan to take questions from the crowd—unlike at his previous press conferences, when a moderator picked the queries. But he won't step off message. The central bank is preparing furiously for the meeting with reporters, so Bernanke can assiduously avoid rattling markets or making news.
The press conference itself is meant to be the news, helping to soften the bank's battered reputation among the public, more than it is supposed to provide new information to financial markets. So expect a new, more open tone. Just don't expect a lot more openness.