There are some things you expect from the chairman of the Federal Reserve: obtuse and circular references to “downside risk,” speeches that only an academic could love, and an obsession from the business press to any references that might hint at future monetary policy direction. But there are also those things you do not expect — such as a Fed chairman breaking the long-standing ‘blackout’ practice, where members of the Federal Open Markets Committee do not comment to the press ahead of an upcoming FOMC meeting. CNBC reported Friday morning that Bernanke has taped an interview set to be aired Sunday evening on CBS’ newsweekly 60 Minutes; the next FOMC meeting is scheduled for March 17 and 18. “The Chairman thought this was a useful opportunity to communicate with a broad audience during an extremely stressful time,” a Fed spokesperson told CNBC, when asked about the apparent blackout violation. What wasn’t said: there isn’t a whole heck of a lot that the FOMC really can do right now, anyhow. There is very little suspense around the outcome of the next Fed meeting. With the federal funds target rate pegged at a range of zero to 25 basis points, critics suggest that the Fed may effectively be out of sufficient ammunition, beyond its capacity to signal future inflation to markets. And to do that, an interview on a widely-watched television newsweekly may be just the platform to push that message out to the masses — and to investors. As economist and erstwhile op-ed columnist Paul Krugman at the New York Times noted in a recent editorial:
To appreciate the problem, you need to know that this isn’t your father’s recession. It’s your grandfather’s, or maybe even (as I’ll explain) your great-great-grandfather’s. Your father’s recession was something like the severe downturn of 1981-1982. That recession was, in effect, a deliberate creation of the Federal Reserve, which raised interest rates to as much as 17 percent in an effort to control runaway inflation. Once the Fed decided that we had suffered enough, it relented, and the economy quickly bounced back. Your grandfather’s recession, on the other hand, was something like the Great Depression, which happened in spite of the Fed’s efforts, not because of them. When a stock market bubble and a credit boom collapsed, bringing down much of the banking system with them, the Fed tried to revive the economy with low interest rates — but even rates barely above zero weren’t low enough to end a prolonged era of high unemployment. Now we’re in the midst of a crisis that bears an eerie, troubling resemblance to the onset of the Depression; interest rates are already near zero, and still the economy plunges.
Krugman wonders who will stop the pain this time — a concern I share deeply. I don’t know that a depression is in the offing, but I do think anyone expecting economic recovery in a near-term timeframe (say, one to two years) is likely deluding themselves. And it seems clear that Bernanke is trying a new strategy to get ahead of a market that continues to find itself stuck in reverse. Write to Paul Jackson at [email protected].
