Ben Bernanke

The news channels are only getting part of the story right about Ben Bernanke's first press conference today.

This is not an attempt by the Fed to provide additional information to financial markets; the Fed already communicates with them on a regular basis.  In fact, that's always been the Fed's primary target audience.

The press conference is the latest piece of a strategy the Fed has been using to broaden its audience by going beyond financial markets and over the head of members of Congress by speaking directly to voters.  It's based on two perceived needs.  First, Bernanke told his staff over a year ago that the Fed had no choice but to talk to Main Street on a regular basis because, if it didn't, it was going to have to explain it's actions at the worst possible time -- after a crisis occurred.  Second, as I've written about on CG&G over the past year, the Fed has a political bullseye on its chest and has no choice but to build public support for what it does and how it

This story in yesterday's New York Times by Binyamin Appelbaum about how Federal Reserve Board Chairman Ben Bernanke now plans to hold regular press conferences about Fed policies and projections is actually far more interesting and important than is reported.

My sources in the Fed told me almost a year ago that, in the wake of the criticism the Fed was receiving about its handling of the financial crisis, Bernanke had made a decision to speak publicly more often and to a much wider audience than either the Fed or he had ever done before.  I was told that Bernanke had decided that he was going to have to talk to the public one way or another and, rather than wait for a problem to occur and then have to defend his actions to an audience that hadn't heard much from him directly, he preferred for the Fed to establish a rapport and talk proactively.

So Ben Bernanke, the Fed chairman, today explicitly justified the logic for another round of quantitative easing (or "QE2") to salvage our sputtering economic recovery.  

On one level, what's striking about Bernanke's speech at a conference of the Boston Fed is how textured, detailed and unambiguous it is in trying to explain a decision the Fed won't officially make until at least Nov. 3.   Bernanke acknowledges that consumer spending has been inhibited by a "painfully slow'' recovery, that job growth is too slow to make any real dent in unemployment through the end of next year and that inflation is actually running unemployment is coming down too slowly and that inflation is "too low" for the Fed's comfort. Then Bernanke spells out the implications for monetary policy, with the bottom line being that the time is right for QE2.

Ben Bernanke may have painted a big bullseye on the Federal Reserve when he spoke last week in Jackson, Wyoming, about the Fed providing additional stimulus if the economy needs it.

Ed and Bruce raise some interesting questions regarding the Bernanke nomination.  I'm in the camp of those, like Brad DeLong, who think his nomination should be confirmed.  As Ed suggested, if it doesn't happen, it will be mostly because of the perceived political need to throw someone or someones under the bus.

But I disagree with Bruce, who said "...there is no obvious replacement for Bernanke who could get confirmed any more easily than him."

The key qualifications would be someone who: