The Transparent Fed: A Step in the Right Direction or Just More Greenspeak?

Transparency has become the financial watchword in the second decade of the twenty first century. Rocked by the financial crisis of 2008, the Bernie Madoff scandal, and worldwide economic fears, the general public is afraid of the financial world. Financial companies, although sometimes forced by legislation, have responded by becoming more transparent in their dealings. In other words, a bit of the curtain of secrecy and confusing language has been pulled back or eliminated in order to regain the public’s trust. The transparency meme has traveled all the way to the highest financial level in the land, the Federal Reserve.

On April 27th 2011, Federal Reserve Chairman, Ben Bernanke made history as being the first Federal Reserve Chairman to hold a press conference after an interest rate decision. Bernanke states that he is simply following the trend set by his predecessor, Alan Greenspan, to make monetary policy more transparent to the public. Well, truth be told, if you have ever listened to Greenspan speak, it’s seriously debatable if his chats did anything other than cause more confusion. Known as “Greenspeak,” Greenspan’s use of the English language confused even the most erudite financial experts. Obviously, Ben Bernanke is more down to earth than Greenspan. But does this new level of transparency help us figure out what the Fed will do next?

According to Bernie Baumohl, the chief economist at the Economic Outlook Group, the press conference is primarily designed to help repair the Fed’s public image. He goes on to say, “The press conference serves multiple purposes. It helps explains the Fed’s role in the economy, improves public trust in the central bank, and can be used discreetly as a platform to place more pressure on Congress to reduce the swelling budget deficits.” As you know there has been a public uprising opposing the Federal Reserve. Many including Ron Paul and numerous Tea Partiers have called for the dismantling of the Federal Reserve. These press conferences act as a tool to help increase public support rather than provide hints on whether or not QE3 will be instituted.

It seems Ben Bernanke wisely goes to great lengths to not drop any hints about QE3, although the door is always left open for that potential policy. Keeping the public happy with transparency, yet not tipping his hand regarding potential future moves is very shrewd, indeed.

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