Image: Ben Bernanke in April 2009
Micheal Reynolds  /  EPA file
Fed Chairman Ben Bernanke has answered reporters' questions several times in his five-year tenure and now is launching a regular quarterly news conference.
By John W. Schoen Senior Producer
msnbc.com
updated 4/26/2011 8:00:55 AM ET 2011-04-26T12:00:55

For much of its 97-year history, the U.S. Federal Reserve has been an opaque, imposing, somewhat mysterious institution that relied on secrecy to hide its innermost deliberations from  global financial markets.

No more.

In the five years since the ascension of Chairman Ben Bernanke, Fed board members and regional bank presidents have been increasingly outspoken about policy disagreements. Bernanke's testimony to Congress has transformed "Fedspeak" — the imponderable dialect spoken by his predecessor Alan Greenspan, into plain English.

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That policy of openness — some have called it the Fed's Glasnost — will reach a new milestone Wednesday when Bernanke holds the first regularly scheduled briefing ever given by a Fed chief, kicking off what is to be a quarterly event. The briefing, to be broadcast live on the Fed’s website and other outlets, will begin at 2:15 p.m. EDT after a regular meeting of the policymaking Federal Open Market Committee.

The official agenda promises a review of the Fed's "current economic projections" and "additional context for the FOMC's policy decisions." But Bernanke could face a long list of questions about the Fed's effort to stave off economic disaster beginning in 2008 and boost the flagging recovery more recently.

Bernanke has faced reporters before but never quite like this. He has made himself more accessible than previous Fed chiefs, giving plain-spoken interviews to "60 Minutes" and PBS and answering moderated questions submitted on notecards at the National Press Club. On Wednesday, Bernanke will field questions directly from reporters in the traditional style familiar to viewers of round-the-clock cable news.

It is a far cry from a time as recently as the 1980s when the Fed did not even announce when it intervened in markets to change short-term interest rates. In those days Fed-watching was a serious and potentially lucrative business as traders could make or lose vast sums by correctly divining the central bank's intentions.

Since then the Fed has come a long way, gradually lifting the veil to release policy decisions at the conclusion of regular meetings, minutes a few weeks later and even full transcripts after a civilized five-year interval.

The Fed's historic policy of obfuscation was not simply the product of an ultra-conservative institution seeking to deliberate freely without the risk of second-guessing from outsiders (though that was part of it). In the last decades of the 20th century, the outsized role of both the central bank and U.S. financial centers on the global money system meant public pronouncements risked sending markets into a tailspin.

While Greenspan was known as a master of the inscrutable comment, he was matched by his predecessor Paul Volcker, who chaired the Fed during a period of high inflation and enormous interest-rate turbulence.

“Volcker told me in his own words that he loved to leave the market totally confused with regard to what he was going to do,” said longtime Fed watcher David Jones of DMJ Advisors.  “Because if half the market thought he was doing something and the other half thought he wasn’t, it would smooth, in his view, the market impact of Fed moves.”

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That type of ambiguity could be hugely risky in today's world, where huge rivers of capital move instantaneously through globally interconnected markets. Trades are executed in milliseconds by computers controlled by algorithms, not stray words or phrases uttered by Fed officials.

That’s not to say that markets don’t wait on the Fed’s every word. The written statements that follow policy-setting meetings are scoured for tiny changes in syntax and grammar. Lately, the Fed’s promise to continue its easy-money policy “for an extended period” has become the bond market's latest cliffhanger.

Bernanke surely will be asked about whether the policy is working and especially whether the Fed's controversial decision to buy an additional $600 billion in Treasury securities beginning last November did anything to boost economic growth.

"The Fed has an opportunity in the press conference to explain its strategy and the reasoning far, far more completely than it ever could in the policy statement," said former St. Louis Fed President William Poole.

"By laying out a smooth trajectory, the hope is that it would minimize disruptions and prevent an overreaction," said Kenneth Kuttner, a former Fed economist who teaches at Williams College and has co-authored research with Bernanke on how markets react to monetary policy changes.

Whatever the motive, there has never been a greater demand for Fed transparency than in the aftermath of one of the worst financial crises in its history. When the credit market collapsed in 2008 the Fed embarked on an unprecedented — some say risky — strategy of trying to put out the financial flames by flooding the system with cash.

The strategy was controversial, to say the least.

“The Fed has come out of the credit crisis really shocked by the mouth of criticism — particularly from Congress,” said Jones. “We’ve never seen withering criticism like this, especially from many of the newly elected Republicans in the midterms.”

Story: As recovery strengthens, Fed poised to act again

Part of the central bank's new policy, then, is public relations: Bernanke has been a tireless champion of the Fed’s massive response to the crisis that began in 2008, drawing on his years as a college professor to patiently explain it and better answer his critics.

Some $2.3 trillion later, the program is set to end in June; Wednesday’ news conference will almost certainly focus on questions about how well the policy worked, and what else the Fed has up its sleeve to try to keep the economic recovery on track.

With no clear policy in place past June, and the economy showing worrying signs of slowing again, the stakes are high for Bernanke.

“The Fed may have ended up setting up high expectations — not just for transparency but for clarity when there is a huge amount of uncertainty with respect to how this recovery is going,” said Jones.

Reuters contributed to this story.

Video: CNBC on Bernanke meeting the press

Explainer: What is the the FOMC?

  • Image: Fed Chair Ben Bernanke
    Getty Images

    The Federal Reserve's chief policymaking group has vast power over the finances of ordinary people, businesses and investors. The consequences of its interest-rate decisions range wide: from people's ability to get affordable loans to the price of cereal at the grocery store or gasoline at the corner station.

    Here's a look at the policymaking group, called the Federal Open Market Committee.

  • What is the FOMC's primary role?

    Image: Employment Development Department office in San Jose, Calif.
    AP

    Its mission is to keep the economy, inflation and employment on a healthy track. When the economy weakens, Fed policymakers cut rates or keep them low. The idea is to cause people and businesses to borrow and spend more, which sustains the economy. But when the economy grows so fast that inflation becomes a threat, Fed policymakers will raise rates or keep them high. That makes it costlier for people to borrow. Spending and other economic activity will slow. Companies find it harder to raise prices. Inflation pressures ease.

  • How does the FOMC move interest rates?

    Image: TV shows rates unchanged
    AP

    Its policymakers decide whether to buy securities. Doing so expands the flow of money into the financial system and lowers the Fed's key interest rate. Conversely, the policymakers could decide to sell securities. That would drain money from the system and tighten credit by raising rates. The Federal Reserve Bank of New York is responsible for conducting these operations.

  • Who's on the committee?

    Image: Federal Reserve Board Governor Raskin
    Reuters

    It's composed of:

    • The Fed's Board of Governors in Washington, which now totals five members but at full strength has seven members.
    • The president of the Federal Reserve Bank of New York.
    • Four of the remaining 11 presidents of the Fed's regional banks. They serve one-year terms on a rotating basis.

    Here is Tuesday's roster of voting members: Fed Chairman Ben Bernanke, Vice Chairwoman Janet Yellen, and Fed Governors Elizabeth Duke, Daniel Tarullo and Sarah Bloom Raskin (pictured), all based in Washington; William Dudley, president of the Federal Reserve Bank of New York; Charles Evans, president of the Federal Reserve Bank of Chicago; Charles Plosser, president of the Federal Reserve Bank of Philadelphia; Richard Fisher, president of the Federal Reserve Bank of Dallas; and Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis.

    (President Barack Obama has nominated Peter Diamond to be a Fed governor, but the Senate hasn't confirmed him. Diamond, a professor at the Massachusetts Institute of Technology, shared the Nobel Prize in Economics in 2010. )

  • How often does the FOMC meet?

    Image: The Federal Reserve building
    Reuters

    It regularly meets eight times a year in person at the Fed's headquarters in Washington. During the financial crisis, the FOMC also held emergency meetings, mostly by video conference. This year, half the meetings were two-day sessions, the rest one-day. All the regularly scheduled meetings last year took two days. That was because the Fed needed time to devise unconventional programs to fight the financial crisis. Traditionally, one-day meetings are more common. Each one-day meeting runs roughly five hours. Two-day meetings run about eight hours spread over the two days.

  • Why are the FOMC's rate decisions issued around 2:15 p.m.?

    Image: Ben Bernanke on TV at NYSE
    AP

    Having a consistent time helps investors digest and react to the Fed's policy decisions. Issuing decisions when the markets are open gives Fed policymakers instant feedback from investors.

  • Why are some of the FOMC's rate decisions issued around 12:30 p.m.?

    Image: CNBC

    For the first time in the Fed's history, the chairman is conducting a series of regularly scheduled news conferences to discuss the Fed's forecast. Bernanke's first was held Wednesday. They will be held four times a year, after the Fed concludes its two-day meetings to update its economic forecasts on growth, employment and inflation. So, after those meetings, the FOMC's decisions are released earlier, around 12:30 p.m. Bernanke will then holds a news conference at 2:15 p.m. It's something that Bernanke's counterparts in Europe and Japan have done for years. The Fed is hoping the news conferences will improve its communications with Wall Street investors and the American public.

  • How are the FOMC's rate decisions approved?

    Image: Gavel
    Getty Images stock

    By a majority of the voting members, who now total nine. (At full strength, there would be 12.) That said, a close decision could spell trouble for the Fed chairman. It would suggest he can't win over policymakers to his side and could leave him weakened. Most votes are overwhelming, however, indicating that Fed chiefs are typically able to build consensus.

  • How are Fed officials selected?

    Image: President Barack Obama
    Reuters

    The president nominates the Fed chairman and his colleagues on the board of governors in Washington. They must be confirmed by the Senate. The presidents of the 12 regional Fed banks are appointed by each bank's board of directors, with approval from the Fed's board. A new law revamping financial regulation, however, bars bankers who sit on the regional boards from voting. Other local business people serving on the boards still retain their vote. This change was made to address concerns about potential conflicts of interest — having officials whose companies are overseen by the Fed in Washington picking the regional presidents.

  • How and why was the Fed created?

    Image: $100 bills
    Reuters

    Congress passed the Federal Reserve Act in 1913. The legislation was signed into law by President Woodrow Wilson on Dec. 23, 1913. The Fed began operating in 1914. It was created in response to a series of bank panics that plagued the United States during the 19th and early 20th centuries. Those panics led to bank failures and business bankruptcies that roiled the economy.

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