Bernanke's Legacy: Loose Policy and Loose Lips

How press conferences and longer Fed statements have boosted the economy.

Federal Reserve Board Chairman Ben Bernanke testifies before the Senate July 17, 2012, on Capitol Hill in Washington, D.C.
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"One thing they want to do is stop surprising the markets. They want to bring the markets along with them," says Paul Edelstein, director of financial economics at IHS Global Insight.

Not that markets always have come along for the ride with the Fed. While communication may be helping it achieve its goals, the central bank has not yet mastered the art of exactly how to talk about what it might do.

"The problem is that they only followed through, I would say, part of the way. They started talking about slowing bond-buying six months ago, so how open-ended was [QE3]?" Edelstein says. "So I say that maybe things could have been better if they had just promised to keep things going until they saw the improvement that they wanted."

[ALSO: What a Yellen-Led Fed Will Look Like]

Of course, communicating is tough when your conversation partner is as sensitive as the stock market. LeBas talks about the Fed issuing "promises," though the Fed would never use that kind of language. Rather, Bernanke and his fellow Fed governors use words like "anticipate" and "expectation" to couch their policy predictions. For example, the FOMC said in its most recent statement that it "anticipates ... that it likely will be appropriate" to keep the federal funds rate near zero, at least until unemployment falls below 6.5 percent.

Those kind of iffy statements are "promises" because of perceptions. Markets, hungry for information, can take the Fed's pronouncements as gospel. So when Bernanke in June said that the Fed could taper its QE3 asset purchases by the end of the year if his optimistic forecast turned out to be true, the stock market tanked. Fed governors spent subsequent speaking opportunities walking back that statement.

Likewise, Fed officials at this year's annual economic symposium in Jackson Hole, Wyo., signaled that a September taper might be coming. When that didn't happen, investors were shocked.

"You can't say you're probably going to do something and not expect it to be taken as a promise," LeBas says.

Though Bernanke instituted the more talkative Fed, presumptive chairwoman Janet Yellen may be the person to refine that strategy. And lesson one might be something Bernanke learned: If you can't say something (relatively) certain, don't say anything at all.

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