Pitching Curves
Outspoken Ben Bernanke is shaking up the Federal Reserve
Avoiding deflation is also a factor in Bernanke's advocacy of a monetary policy device--untested in the United States--called inflation targeting. In short, inflation targeting would require the Fed to articulate and work toward a long-term, Goldilocks level of inflation. It would effectively codify Greenspan's method of intuition and improvisation, thereby shifting market confidence from a person to an institution. Frederic Mishkin, a Columbia Business School economics professor and Bernanke's frequent coauthor, boils it down to the question, "How do you get the benefits of Alan Greenspan when he's not around anymore?"
Boxed in. Some critics believe such a policy could shackle the Fed, leaving it little wiggle room when economic shocks--think oil price spikes--arrive without warning, says Tom Schlesinger, executive director of the Financial Markets Center, a Philomont, Va., firm that tracks the Fed. Greenspan is also wary of targeting, noting recently that it is "highly doubtful" it could lead to improvement in the economy, strong words from the usually subdued chairman. But Bernanke maintains that rigidity is not part of his vision. "It's a relatively soft version of inflation targeting which would respect concerns that people have about tying our hands too much and reducing our flexibility." Schlesinger doesn't buy it. "Flexible inflation targeting is like being partly pregnant; either you're targeting or you're not."
It is not just inflation goals Bernanke wants to make clear. He continues to campaign for greater overall transparency at the oft-mysterious Fed, including quantitative forecasts and promptly published meeting minutes. Currently, the Fed provides only qualitative assessments of the economy and publishes minutes after they've become irrelevant, critics say.
A plain-spoken man, Bernanke delivers speeches that are paragons of clarity and simplicity, a stark contrast to those of the oracular Greenspan, who often seems to speak in tongues. "Bernanke's taking the mystery out of the secrets of the temple," says Paul McCulley, a Fed expert at bond giant Pacific Investment Management Co.
Such efforts could one day mean that the Fed's policymakers no longer mire the McCulleys of the world in Talmudic debate over the precise meanings of terms such as "considerable period" and "roughly equal," as the Fed's December pronouncement did. Could this be the end of Fed-speak?
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