BERNANKE EXPLAINS FED´S NEW OPENNESS / THE FINANCIAL TIMES

Bernanke explains Fed’s new openness

By Edward Luce in Washington

Published: July 30 2009 19:19

Ben Bernanke has explained his decision to turn the normally secretive US Federal Reserve into something of an open house, saying his unusually large number of recent public appearances are the result of the “extraordinary” times the country faces.

The Fed chairman has turned up at everything from a 60 Minutes television interview to a Kansas City town hall session over the past few weeks, prompting some to wonder if he is trying to ensure he is re­appointed when his four-year term ends in January.

However, Mr Bernanke said he was answering a clear public need. “Normally Fed chairmen don’t do this kind of thing because we want to avoid causing near-term market volatility as people try to anticipate our next FOMC [federal open markets committee] meeting,” he told the Financial Times this week.

“But this is an extraordinary period. We want to answer the questions we know people have about what hit them in this economic crisis, what the Fed is doing about it and how we expect economic developments to play out.”

The Fed’s new openness is well timed. This week, as the debate continues over the bank’s role in the financial crisis and proposed prudential powers, Gallup showed it is held in lower esteem than the Internal Revenue Service.

More seriously, there is a populist headwind in Congress among some lawmakers who want to remove the Fed’s monetary independence.

Cynics believe Mr Bernanke is using this public relations outreach to ensure he is reappointed next January. But Mr Bernanke says the goal is to educate the public about what the Fed does at a time when it keeps getting caught in the crossfire over its role in the crisis and its future prudential powers. The first question Mr Bernanke received last Sunday was from a social worker who wanted to know what the Fed actually did. The softly spoken chairman told another questioner that he did not wish to be the “chairman who presided over the second Great Depression”.

One bill, backed by Ron Paul, the maverick Republican, has 250 co-sponsors and would, in the Fed’s view, rob it of autonomy by giving auditors the right to look at its monetary policy decisions.

As a result, since January Mr Bernanke has made himself available to Capitol Hill, giving 11 public testimonies, holding 25 one-to-one meetings with lawmakers and meeting nine groups from both parties.

Mr Bernanke’s outreach completes a revolution in the way the Fed does business that began under his predecessor, Alan Greenspan. Until the early 1990s, the Fed did not even communicate the results of its monetary policy meetings, leaving it up to markets to work out what interest rate decision it had made. Today, it publishes full minutes from the meetings.

Mr Bernanke, who had a 75 per cent approval rating from international investors in a Bloomberg poll last week, faces a gruelling autumn when Congress looks at controversial proposals to give new powers to the Fed as a systemic risk regulator.

The chairman’s personal standing remains high. “I would be astonished if Ben isn’t re­appointed,” says Alice Rivlin, a former vice-chairman of the Fed. “He has become very good at interacting with people beyond the usual circles and he is good at avoiding traditional Fed-speak.”

Copyright The Financial Times Limited 2009