The annual White House Correspondents’ Association dinner is usually seen by the public as a time when the president pokes some fun at himself. This year, the entertainment was overshadowed by a quiet conversation that made the stock market tank and had Fed-watchers scratching their noggins.
CNBC reporter Maria Bartiromo announced on Monday that Federal Reserve Chairman Ben Bernanke mentioned to her at the April 29 event that the media and the markets misunderstood his “pause” comment to Congress earlier in the week.
And, according to a transcript of Bartiromo’s comments, Bernanke “found it worrisome that anyone would think of him as dovish.” Instead, the Federal Open Market Committee was simply “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 at future meetings.”
Let’s back away from the canapés and chardonnay for a moment. Here’s what Bernanke said to the Joint Economic Committee of Congress on April 27.
“The FOMC will continue to monitor the incoming data closely to assess the prospects for both growth and inflation. In particular, even if in the Committee’s judgment the risks to its objectives are not entirely balanced, at some point in the future the Committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook.”
What’s not to understand? Did anyone interpret that as meaning that the Fed definitely would not be raising the fed funds rate at the May 10 meeting or even at the June session? Certainly the chairman’s report to Congress gave a flicker of hope to those who would like to see the rate hikes end sooner rather than later. And, apparently, those same words caused a bit of consternation among the fixed-income mavens who want to make sure the rate hikes don’t end prematurely. But nothing was set in stone.
Bernanke’s not some economic wonk who got buttonholed at a fancy dinner by one of the best known reporters on Wall Street and didn’t realize who she was or thought that the conversation was off the record. Perhaps he thought his comments to Congress may have come across as dovish and wanted to move away from them a bit.
Bernanke has always been clear that Federal Open Market Committee decisions will be data-driven. He’s also made it clear that he understands there’s a significant lag before rising interest rates take full impact. In that same speech to Congress, he noted that “focusing on the medium-term forecast horizon is necessary because of the lags with which monetary policy affects the economy.”
The Bernanke-Bartiromo conversation has been unsettling for the financial markets — almost to the point of being silly, but it certainly has been interesting. And it’s a world away from the days when the Fed was tight-lipped about its thought process.
What does it mean for the May 10 meeting? Well, there are plenty of signs this week that the economy is gaining muscle and that inflation is rising, but the housing market is a question mark. The Chicago Board of Trade places the probability of a 25 basis point rate hike May 10 at better than 80 percent.