In March, when Ben Bernanke last faced the press for a news conference, we brought you “Drunk Ben Bernanke,” our best guess as to how the Federal Reserve chairman might respond to questions thrown at him if he were feeling particularly blunt. That is, how might an inebriated Bernanke face the press.
Alas, our efforts back then to swap his water glass for gin were unsuccessful, and the chairman answered queries with his typical, level-headed, calm and cautious understatement. But if he were to decide to go on a bender before his news conference today, at the conclusion of the Fed's latest two-day policy meeting, here's what we suspect we'd hear.
Question: So, when are you going to taper the pace of Federal Reserve bond purchases, currently $85 billion a month?
Bernanke: Sigh. Okay. I know that whatever I say to this, markets are going to hyperventilate and swing based on every pause and comma and adjective. It’s kind of exasperating, but I guess that’s the world we live in now. So I’ll just put it all on the table.
You guys are focused on the wrong thing! You want to interpret us going from $85 billion a month to, say, $70 billion a month in September versus December versus next year as conveying a ton of information about how loose or tight monetary policy is going to be years into the future. It’s not so. It’s more a judgment based on factors like whether we’re convinced the economy is gaining momentum, whether we expect inflation to rise to our target or decline farther, and how worried we are about the impact our purchases have for the functioning of the bond markets.
So, we could taper sooner but still continue QE for longer, and the total scale of purchases could continue for longer. We’ll let the data be our guide. You should, too.
And don’t get me started about people using the taper talk to suggest that we’re going to raise short-term interest rates sooner rather than later. We just told you in December, and at every meeting since then, that we won’t hike rates until unemployment gets down to 6.5 percent or inflation is set to go over 2.5 percent. So, it’s fine if you want to change your assessment of when that might be based on incoming economic data. But if you’re changing that assessment based on something Jim Bullard or Eric Rosengren said about what we’ll do in the next few meetings, you’re doing it wrong.
Seriously, though, when are you going to taper?
When the time is right.
And when do you expect that to be?
Eh, the next few meetings. Maybe September. Maybe December. Maybe early next year. We’ll see.
Do you think the recent volatility over the changing perceptions of Fed policy amounts to a communications failure?
[Shrugs] Well, what are we supposed to do? We're a committee of 19 members who have to arrive at one policy decision. Each of those 19 has his or her own public platform for airing views and his or her own unique set of factors to weigh. It's not even as simple as hawks versus doves. There are people who worry more about undershooting our inflation target versus weak job growth. There are people who worry a lot about asset bubbles versus those who think those risks are overblown. There are people who think it wise to enumerate exactly what they believe would be "substantial improvement" in the labor market to trigger tapering and those who would rather be a little vague. If you want to overreact to everything those 19 people say, that's your problem, not mine.
Are you surprised that fiscal tightening hasn’t weakened the economy more?
A little. But that just makes me that much angrier at Congress. If they had followed my advice and moved more cautiously on short-term deficit reduction, and avoided this idiotic sequester, we would probably have a quite healthy little expansion going on right now. Instead, we’re pushing our foot on the accelerator while fiscal policy is putting on the brakes, and even though the car is still moving forward, there’ s a lot of damage done. Like worn-down brake pads, I guess? Man, I probably should slow down. I guess in this metaphor, the worn-down brake pads are stock market volatility and maybe a bubble in high-yield debt? Or something?
As you know, the president seemed to suggest that you will be stepping down when your term ends in January. If the president asked you, would you serve another four-year term?
Guys, look, the writing is on the wall. I’ve been keeping quiet about it, because it probably isn’t good for confidence if I’m on record as being a lame duck. But, of course, I’m stepping down! Nothing about this last couple of months of hyperventilating about tapering has made me especially eager to stick around for the next four years.
Will you miss us?
You probably don't want to ask me that.