- The Washington Times - Tuesday, May 2, 2006

Underestimates importance of casual comments

BLOOMBERG NEWS

Federal Reserve Chairman Ben S. Bernanke is getting a crash course in what it means to be the head of the world’s most powerful central bank.

Financial markets were blindsided Monday after CNBC anchorwoman Maria Bartiromo reported that Mr. Bernanke told her that investors were wrong in thinking he is finished with lifting interest rates.

Stocks surrendered gains, bonds fell and the dollar jumped in response to the remarks, which Mrs. Bartiromo said were part of a conversation at the White House Correspondents Association dinner in Washington on Saturday.

It is not clear exactly what Mr. Bernanke said; a Fed spokeswoman declined to comment. What is clear, Fed watchers say, is that Mr. Bernanke underestimated the scrutiny that anything he says, even in a social situation, will receive now that he is chairman.

“The management of communication here and the way things were said has, I think, undermined a little bit of Fed credibility for now,” said John Ryding, chief U.S. economist at Bear Stearns Cos. in New York.

The confusion over the Fed’s intentions comes at a delicate time for markets and the central bank. After 15 straight rate increases, investors are alert for any sign that the Fed is about to conclude its tightening campaign, the longest in more than a quarter century.

Mr. Bernanke, who became Fed chairman in February, told Congress’ Joint Economic Committee on Thursday that the Fed may suspend the increases even if economic risks are tilted toward faster inflation. Policy-makers meet to decide borrowing costs next week.

The dollar strengthened to $1.2587 per euro yesterday, from $1.2634 on Friday, and closed higher against the yen after weakening for much of the day.

Ten-year Treasury notes added to a slump that pushed them to a fourth straight monthly loss in April.

“I asked him whether the markets got it right after his congressional testimony, and he said, flatly, no,” Mrs. Bartiromo said on CNBC. “He said he and his Federal Open Market Committee members were basically trying to create some flexibility for the Federal Reserve, saying the Fed may pause but the data will really dictate whether more rate hikes will occur.”

Medley Global Advisors LLC, which provides research to hedge funds, said in a report yesterday that the remarks attributed to Mr. Bernanke revealed no shift in his thinking from the testimony. New York-based Medley was the first to report last year that Mr. Bernanke would be nominated to succeed Alan Greenspan.

The annual White House Correspondents Association dinner is a black-tie affair dating back to 1920 that brings together politicians and officials with the reporters who cover them. President Bush, Mr. Bernanke and Supreme Court Justice Antonin Scalia were among guests this year.

Mr. Bernanke is not the first Fed chairman to learn the hard way that his words carry great importance.

Shortly after taking over the reins at the Fed in August 1987, Mr. Greenspan appeared on ABC’s “This Week” program and suggested that inflation could become a problem if consumers and companies thought that it was inevitable.

Bond yields rose and stocks fell in response, and Mr. Greenspan never gave another television interview about the economy.

Fed policy-makers meet next Wednesday.

, and economists whom Bloomberg News surveyed unanimously expect the Fed to raise its main rate a 16th time to 5 percent.

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