The Daily Market Report
Bernanke Fed Going Opaque By Design?
24-May (USAGOLD) — Gold is narrowly confined on Friday ahead of the long holiday weekend, but appears poised for its first weekly gain since the first week of May. Weakness in equities and a softer dollar are underpinning the yellow metal ahead of the Memorial Day weekend.
More obvious mixed messages from the Fed this week have resulted in a sense of uncertainty with regard to monetary policy moving forward. That may be prompting some investors to to take some of their recent stock market gains off the table.
During Bernanke’s nomination hearing in 2005, the soon to be Fed chairman said, “A more transparent policy process increases democratic accountability, promotes constructive dialogue between policymakers and informed outsiders, reduces uncertainty in financial markets, and helps to anchor the public’s expectations of long-run inflation–which, as I have argued already, promotes economic growth and stability.”
Bernanke was lauded last year for his transparency when he established, not only an explicit inflation target, but an unemployment target as well. That effectively covered both elements of the Fed’s dual mandate, price stability and maximum employment.
More recently however, the Bernanke Fed seems to have taken on some of the fabled opaqueness of his predecessor, Alan Greenspan. Senator Jim Bunning once famously said, “The Greenspan policy on transparency was talk a lot, use plenty of numbers, but say nothing.”
Well, the Fed is certainly talking a lot these days, but much of what is being said is in direct contradiction to what others have said. One has to wonder if this is by design, or if suddenly, confusion reigns at our central bank. I would wager the former.
Case in point: Bernanke reiterating the well worn conditional policy mantra before the JEC this week, in what I would characterized as a quite dovish prepared statement, only to say during questioning that central bank asset purchases could slow “in the next few meetings.” Subsequently, St. Louis Fed hawk Bullard indicated that he’s hesitant to discuss exit strategy when the FOMC is not talking about it at the moment and not close to talking about it.
Not talking about it? There are a couple regional Fed President’s that won’t shut-up about it!
Nonetheless, in keeping markets off balance and on their heels, it discourages speculators from making big bets one way or another. Believe me, Bernanke and his colleagues are very much aware of of the frothiness in global equities markets, as well as in some real estate markets.
With Bernanke’s days as Fed chairman widely believed to be numbered, his legacy assuredly is weighing heavy on his mind. The last thing he needs is another bubble to burst on his watch, or worse yet, remove accommodations too early only to see the economy fall back into recession.
He risks going from the Fed chairman that shepherded us through the worst financial crisis since the Great Depression, to the goat that failed to heed his own well documented advice.
It strikes me as very unlikely that the Fed removes accommodations any time soon. In the meantime, the financial press may be relegated to trying to discern monetary policy moves by examining the chairman’s coffee grounds, or evaluating the thickness of his briefcase.