Does Bernanke’s clearer ‘Fed speak’ make him a better steward of the U.S. economy?

Like Greenspan, the current Fed chairman, Ben S. Bernanke, also has a degree from the school of Fed-speak— in addition from Harvard and MIT. But while Greenspan was famously obfuscatory, Bernanke has pushed in the opposite direction. He has moved the central bank away from ambiguity and toward specificity, a shift that culminated in Wednesday's decision to link Fed policymaking to numeric targets for unemployment and inflation.

The announcement that the Fed would keep interest rates close to zero until unemployment falls to 6.5 percent or inflation looks likely to exceed 2.5 percent was a historic moment for the central bank.

Bernanke described the policy Wednesday — although his desire for clarity did not mean he was abandoning a penchant for dense, jargony prose.

"The modified formulation makes more explicit the [Fed's] intention to maintain [low interest rates] as long as needed to promote a stronger economic recovery . . . , a strategy that we believe will help support household and business confidence and spending," he told reporters. "By tying future monetary policy more explicitly to economic conditions, this formulation of our policy guidance should also make monetary policy more transparent and predictable to the public."

Yet the big question that remains is whether this clearer approach has simply made the reticent economics professor a better communicator — or a more effective steward of the nation's economy.

There's little question that Bernanke, in particular, tends to talk in plainer language than his predecessor. Fed chairmen used to never give on-the-record interviews, but he has added four news conferences a year following policymaking meetings, and has made numerous media appearances.

But those shifts are more stylistic than substantive — giving a human face and voice to unconventional and controversial actions the Fed has undertaken in the past five years.

The substantive changes involve what the Fed says publicly about its policies. For most of its history, it said little. In the mid-1990s, the central bank for the first time declared its target for short-term interest rates, which can have a dramatic effect on economic activity — and are largely the purview of the Fed.

The changes have been even more dramatic under Bernanke, in part out of necessity. In late 2008, during the financial crisis, the Fed lowered short-term interest rates to near zero in an effort to stimulate economic activity. But that was not enough to push the economy into a vibrant recovery.

With short-term interest rates that it controls near zero, the Fed had two other tools at its disposal. First, it effectively printed dollars and bought assets — in particular U.S. government bonds and mortgage bonds — to inject money into financial markets, sending other interest rates down.

Source: http://www.news.theusalinks.com/2012/12/13/does-bernankes-clearer-fed-speak-make-him-a-better-steward-of-the-u-s-economy/