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Prof. Bernanke takes questions

But for all the hoopla, the Fed chairman offers little in the way of new revelations

April 28, 2011|By Don Lee and Jim Puzzanghera, Los Angeles Times
  • Federal Reserve Chairman Ben S. Bernanke takes questions during a news conference after the Fed meeting in Washington.
Federal Reserve Chairman Ben S. Bernanke takes questions during a news… (Jim Watson, AFP/Getty Images )

Reporting from Washington — The buildup seeming to rival that of the British royal wedding. A cable news channel displayed for hours a digital clock counting down to the event. Pundits breathed deeply about the potential impact of it all.

The marble temple-like edifice that houses the nearly century-old Federal Reserve had never seen anything like it: For the first time, a chairman of the central bank was submitting himself to questioning by reporters at an news conference.

At the appointed time, the chairman, Ben S. Bernanke, took his seat behind a mahogany desk made specially for the occasion.

But for all the advance hoopla and suspense, Bernanke offered little in the way of new revelations, except perhaps what the Fed means when it says interest rates will stay low for "an extended period."

Facing about 60 journalists seated before him seminar-style, the longtime Princeton professor seemed at ease as he defended and explained the central bank's controversial actions to stabilize the economy, expressed empathy over ordinary Americans' struggles with high oil prices, and insisted that policymakers would not let inflation derail the economic recovery.

"I think every central banker understands that keeping inflation low and stable is absolutely essential to a successful economy and we will do what's necessary to ensure that happens," Bernanke said, the American and Federal Reserve flags flanking him with a blue-curtain background.

Before the event, analysts debated whether there was more to be gained or lost for the Fed chairman to face journalists. But the affair was cordial and hardly had any of the fireworks and hostile questioning Bernanke has encountered from lawmakers.

"I think he knocked the ball out of the park," said Diane Swonk, chief economist at Chicago-based Mesirow Financial and a longtime Fed watcher. "He was well-prepared and did exactly what he wanted to do – do no harm.''

The news conference came at the conclusion of the Fed's two-day meeting on interest-rate policy. In a statement released earlier in the day, the central bank said it essentially planned to stay the course of trying to boost the economy with monetary stimulus and rock-bottom interest rates despite concerns about rising inflation driven by higher fuel and commodity prices.

The statement said the Fed would keep its key short-term interest rate at near zero for "an extended period" and let its $600 billion bond-buying campaign, aimed at holding down long-term interest rates, run its course through June as scheduled.

The historic event was Bernanke's latest and most dramatic attempt to communicate with a public that has largely seen the Fed as a friend of Wall Street more than an advocate for everyday Americans. Because of the Fed's unprecedented and unpopular intervention in the economy during the financial crisis, including helping to bail out troubled financial institutions, lawmakers and the public have increasingly focused on the central bank's traditionally secretive practices.

More recently, some analysts and even some Fed officials, fearing runaway inflation down the road, have questioned the wisdom of keeping the credit spigot open and expanding the Fed's holdings of Treasury and other securities, which have ballooned to about $2 trillion in response to the financial crisis.

But Bernanke said Wednesday that long-term inflation projections remain stable. As for the recent short-term consumer price increases, he reiterated the Fed's view that they looked to be temporary, fueled mostly by surging oil prices. Yet Bernanke also cited inflation concerns as a major factor in convincing the Fed not to continue its latest bond-purchase effort beyond its scheduled end.

"The trade-offs are getting less attractive at this point," he said. "Inflation has gotten higher…it's not clear we can get substantial improvements in payrolls without some additional inflation risk."

When reporters tried to pin him down on the ambiguous language used by the Fed, he gave little ground. Asked to explain exactly how long the Fed's "extended period" of near zero interest rates would last, he said the term suggested it would be at least through a couple of policy-making meetings. The next two meetings are in June and early August.

But he also added: "Unfortunately, the reason we use this vaguer terminology is we don't know with certainty how quickly response will be required."

Bernanke was asked about the impact of rising fuel prices and higher inflation, and why the Fed was not doing more to contain it. In response, he flashed a bit of soft-spoken frustration, saying the central bank was trying to balance its dual mandate of keeping inflation and unemployment low.

"There's not much the Federal Reserve can do about gas prices, per se, at least not without derailing growth entirely, which is certainly not the right way to go," he said. "After all, the Fed can't create more oil."

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