- The Washington Times - Tuesday, May 23, 2006


Federal Reserve Chairman Ben S. Bernanke said yesterday that he suffered a “lapse of judgment” in talking recently to a CNBC anchor, a conversation that caused the stock market to tank when his comments were reported.

Sen. Jim Bunning, Kentucky Republican, asked Mr. Bernanke about the episode during a Senate Banking, Housing and Urban Affairs Committee hearing on financial literacy.

“Senator, that episode you refer to was a lapse of judgment on my part,” Mr. Bernanke replied. “In the future, my communications with the public and with the market will be entirely through regular and formal channels.”

Mr. Bernanke took over the Fed job on Feb. 1. In a congressional appearance on April 27, he had raised the possibility of the Fed pausing its two-year, credit-tightening campaign. Stocks rallied that day.

But on May 1, CNBC reported that Mr. Bernanke had told CNBC anchor Maria Bartiromo that investors had misinterpreted his recent remarks as an indication the Fed was nearly done raising rates. Stocks — which had been up for most of that day — slumped.

Mr. Bernanke had actually talked to Mrs. Bartiromo on April 29, at the White House Correspondents’ Association dinner.

Besides raising questions about Mr. Bernanke’s communications skills, the incident underscored the fact that a single word uttered by a Fed chief can move stock and bond prices.

At yesterday’s hearing, Mr. Bunning, who opposed Mr. Bernanke’s nomination as Fed chief, said, “I warned you to be careful about what you say because people are going to follow your words very closely.”

Mr. Bunning also took issue with the Fed’s decision to push interest rates higher to fend off inflation. The Fed’s last rate increase on May 10 left a key rate at a five-year high of 5 percent. It marked the 16th increase since June 2004.

Mr. Bernanke defended the action. He pointed out that he and his Fed colleagues at the May meeting noted there were some inflation risks to the economy. In terms of the Fed’s next rate decision in late June, though, Mr. Bernanke said the Fed will rely heavily on what incoming barometers say about inflation and economic activity.

Between now and then, “we’ll be watching that data very carefully,” Mr. Bernanke said.

The exchange came at a hearing focused on financial literacy. The Fed chief told the panel that sharpening Americans’ financial know-how and skills is crucial to consumers’ ability to make smart money choices and is also good for the overall economy.

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