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Grading Ben Bernanke: B for Substance, But Attitude Needs Adjustment

Boooooring! In the first ever press conference by a Federal Reserve Chairman, Ben Bernanke didn't freeze up, muff his lines or sail off on any long-winded tangents. By my count, he expressed humor once and smiled twice (although the second one could've been gas).

In other words, he did great. That's not saying much, in some ways, since Bernanke didn't have that much to do. The central bank is maintaining its benchmark bank lending rate, while the Federal Open Markets Committee's latest economic forecast is very similar to the March statement. By contrast, it is slightly more pessimistic about growth. The committee now expects GDP this year of 2.9 to 3.7 percent, versus its January projection of 3.2 to 4.2 percent (see table at bottom for the Fed's full forecast). But the growth numbers for 2012 and 2013 are largely unchanged.

Core inflation (excluding food and energy prices) has ticked up, but remains low at 1.1-2 percent. Unemployment is as stubborn as ever. The FOMC expects the jobless rate this year to tick down to 8.1-8.9 percent, only marginally better than its earlier expectations. And nothing has changed to suggest that the labor market is about to come roaring back.

S&P "didn't really tell us anthing"
The Fed is also sticking to its plan of ending quantitative easing in June, a move Bernanke said is unlikely to roil financial markets or the broader economy. Without having to explain a sudden or drastic change in policy, he was only left to fence lightly with the press, who didn't ask any questions he wouldn't have prepped for.

This Bernanke did deftly and with growing confidence during the one-hour briefing. Fine, so on the charisma scale he won't remind you of, oh, anyone with charisma. But the Chairman was generally as direct in his answers as could be expected. Here's some of what he had to say:

On whether the economy is firmly on the road to recovery:

Well, as I mentioned, we have made a lot of progress. Last August when we began to talk about another round of securities purchases, growth was very moderate and we were actually quite concerned that growth was not sufficient to continue to bring the unemployment rate down. Since then, we have seen a reasonable amount of payroll creation, job creation. That picked up in the most recent few months, together with a decline in the unemployment rate from, you know, 10 percent down to the current rate of 8.8 percent....

That being said, the pace of improvement is still quite slow and we are digging ourselves out of a very, very deep hole. We are still something like 7 million plus jobs below where we were before the crisis. So clearly, the fact that we are moving in the right direction even though that's encouraging doesn't mean that the labor market is in good shape.

On whether Standard & Poor's recent move to put U.S. debt on a "negative" watch suggests America is in danger of losing its AAA credit rating:
Well, in one sense S&P's action didn't really tell us anything. Anybody who read a newspaper knows that the United States has a very serious long-term fiscal problem. That being said I'm hopeful that this event will provide at least one more incentive for Congress and the [Obama] administration to address this problem. I think it's the most important economic problem at least in the longer term that the United States faces....

It is encouraging that we are seeing efforts on both sides of the aisle to think about this issue from a long run perspective. It is not a problem that can be solved by making cease only for the next six months. It's really a long-run issue. We are still a long way from a solution, obviously. But I think it is of the highest importance that our political leaders address this very difficult problem as quickly and as effectively as they can.

On whether the Fed can do anything to check rising gas prices:
There's not much that the Federal Reserve can do about gas prices per se. At least not without derailing growth entirely, which is certainly not the right way to go. After all, the Fed can't create more oil. We don't control the growth rates of emerging market economies. What we can do is basically try to keep higher gas prices from passing into other prices and wages throughout the economy and creating a broader inflation which will be much more difficult to extinguish.
Humble pie, anyone?
If there was a disappointment, it was in Bernake's response to a question about whether the Fed is doing everything it can to bring down unemployment. His answer, in a word: Yup. He said the bank has taken "extraordinary measures" to boost the economy. That includes creating what he described as "new ways to ease monetary policy," a reference to the Fed's watering the economy with trillions of dollars.

Perhaps. But here Bernanke's professorial demeanor let him down a tad. He has every right to defend the Fed, of course. But sometimes gravitas is no substitute for humility. Showing a smidgen of empathy wouldn't hurt, either (as consumer watchdog Elizabeth Warren does to great effect). Economist Simon Johnson correctly notes that Bernanke and the central bank would have a lot more credibility on such matters if the Fed didn't reflexively deny that its policies may not be working.

Put another way, Bernanke's task today wasn't only to update the American public on the state of the economy. It was also to show that the central bank -- which covered itself in shame leading up the financial crisis -- is capable of interrogating itself. His talk was a small, if halting, step in that direction. But no need to get all cocky about it.


Thumbnail and image from Wikimedia Commons
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