WASHINGTON — The Federal Reserve Board, well known for its secrecy, is disclosing more of its views — and disappointments — to the public in an effort to provide clarity and incite much-needed confidence.
The latest such move by the central bank is an op-ed published in Thursday's edition of The Washington Post explaining the Federal Open Markets Committee's decision this week to buy $600 billion in additional longer-term Treasury securities. The Fed has only made such a large monetary policy move twice before in 2008 and 2009.
Bernanke appeared to be going out of his way to ensure the Fed was being as open as possible about what it was doing and why. While it often has made decisions and let observers squabble over what they mean, many said Bernanke's op-ed was an unusual step to provide clarity and promote confidence.
"He's [Bernanke] starting to use the media and transparency to promote the economic agenda," said Oliver Ireland, a partner at Morrison & Foerster and a former Fed lawyer. "The Fed doesn't do media sound bites on prime-time evening television. This kind of statement it seems to me is unusual. It's a big deal, it's a change."
Even though many in the market have been anticipating the Fed's action since the chairman spoke of it at the Federal Reserve Bank of Kansas City's Jackson Hole, Wyo., conference, Bernanke's decision to outline the reasoning of the central bank's decision was seen as a clear effort by the Fed to ensure there was no misunderstanding over what it was trying to accomplish. "The FOMC issued a very terse statement. They had three sentences to explain a $600 billion move," said Randall Kroszner, a former Fed governor and professor at the University of Chicago Booth School of Business. "With a large move like this, even though it was well anticipated and well explained in advance, there's a benefit in ensuring clarity. It minimizes the chance there could be confusion about what the Fed is doing and what it is likely to do be doing going forward."
The Fed, along with other federal agencies, has made a concerted effort over the past several years to provide greater public disclosure, with Bernanke himself appearing to make transparency a top priority.
Doing so, some argue, ultimately helps the Fed accomplish its dual-mandate.
"To the extent the markets have a better understanding of what the public policy is, and what the policy objectives they are seeking … [is] enhanced by their understanding," said Richard Spillenkothen, a former head of supervision at the Federal Reserve Board and now the director of governance, regulatory and risk strategies at Deloitte & Touche LLP. "There was a general view that given the importance of this step, it was all the more important that there be a good understanding of why it's being done," Spillenkothen said.
Others, agreed.
"Ultimately, the economy runs on confidence," Ireland said. "You can't push a rope. The Fed can take impediments from people wanting to spend money out of the way by reducing the interest rate, but you can't make people spend money."
Still, while the goal of the central bank may have been to provide greater disclosure, some felt the Fed left a few important questions unanswered, including the interplay with fiscal policy as well as the impact of the dollar.
"I was struck more by what was left out than what was in it," said Cornelius Hurley, director of the Boston University School of Law Morin Center for Banking and Financial Law.
