Fed’s Bernanke launches charm offensive

John W. Schoen Senior producer • Profile • E-mail

For most of its 95-year history, the Federal Reserve has been a pretty sleepy, opaque institution. No more.

In just the past few weeks, the debate over how to prevent the next financial meltdown has erupted into a pitched battle among the Fed, Treasury and a host of lesser financial regulators.

Battered by withering criticism of the central bank’s role in the housing bubble, its lax regulation of predatory lenders and unprecedented, trillion-dollar intervention in the global financial system, some members of Congress now want to put the central bank on a shorter leash.

In response, Fed Chairman Ben Bernanke has launched something of a charm offensive.

The latest salvo is a virtually unprecedented “town hall” style meeting produced by the PBS television network Sunday, where Bernanke took the Fed’s case directly to the American public.

At the forum held in Kansas City, Mo., Bernanke said he had to “hold my nose” over last year’s taxpayer-financed bailouts of big financial companies, but also argued that the action had to be taken to avoid a major meltdown of the U.S. financial system and the broader economy.

The Fed chairman's town hall meeting would have been unimaginable in the 18-year tenure of Bernanke's predecessor, Alan Greenspan, who spoke only in carefully managed speeches and Capitol Hill appearances, and then in Delphi-like utterances that were left open to interpretation.

The Fed has operated in relative secrecy for much of its 95-year history. Until February 1994, for example, the Fed’s rate-setting Open Market Committee didn’t even announce its decisions for more than a month, leaving it to bond traders to surmise when policymakers had decided to change rates. That element of surprise helped amplify the power of monetary policy changes: No trader wanted to be caught on the wrong side of the Fed when it made its move.

In public, Fed officials stuck closely to scripted statements or spoke an imponderable technical dialect known only to a handful of academics and Wall Street “Fed watchers.” Because the weight of a Fed official’s actions carried near-mythical impact, a slip of the tongue or an unguarded moment of candor could send the dollar plunging or bond market reeling.

But over the past decade, the Fed has gradually worked to increase the “transparency” of its operations, pulling back the veil with fuller disclosure of policy debates and tolerating increasingly outspoken public comments by individual Fed governors and regional presidents.

That gradual shift accelerated abruptly last fall, when the global financial collapse shoved Bernanke, a soft-spoken former Princeton professor, into the glare of the public spotlight.

“With all that’s gone on in the last year and a half — the crisis and the bailout and the populist outcry from the public — my assumption is that he thinks that a lot more transparency is needed under the current circumstances," said former Dallas Fed President Robert McTeer. "He’s hoping to explain and make sense of what the Fed’s doing.”

Since the financial crisis began last September, Bernanke has dramatically expanded his public access and appearances beyond the wildest imaginings of any of his predecessors. From a high-profile interview on CBS' "60 Minutes" in March to a televised question-and-answer session with students from Morehouse College in April, the chairman has departed from the usual scripted speeches. The PBS town hall promises to raise his profile even further, just as some Washington insiders are questioning whether Bernanke will get a second four-year term as Fed chairman when his term expires Jan. 31.

Beyond the public's general awareness of interest rates, the intricacies of Fed monetary policy — the reverse repurchase agreements, currency swaps and discount window borrowings —aren’t typically a discussion topic at family summer barbecues. But the historic scope and high profile of the Fed’s actions over the past 18 months have not gone unnoticed on Main Street.

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