Randomly Noted

The Federal Reserve has a committee studying how to improve communications with the public. But change was not in evidence in the latest statement issued today following the rate-setting meeting of the central bank.

In a bid to be more open with investors and the general public, the Fed should adopt a less stilted post-meeting announcement of its rate decision. Sure, each word the Fed utters must be carefully chosen because each word will be subject to over-the-top analysis by market types and analysts. But still, the Fed should indicate it doesn’t live in a cave.

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This may be a case of  over-the-top tea-leaf reading.

So, by definition, it will be convoluted. But here goes. My interpretation of some comments made today byFederal Reserve Vice Chair Janet L. Yellen indicates the central bank will feel no rush to remove the famous “extended period” language from its post-meeting statements.

The reason for that, essentially, is that Yellen thinks the Fed’s conditionality around that phrase has been sufficient to allow market participants to change their views about when the central bank may finally come off its long-standing emergency easy policy, which features zero short-term interest rates. Said another way, the phrase “extended period” is flexible.

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You normally wouldn’t think it’s good news that consumers are taking on more debt, especially when that debt comes in the form of credit cards, which can be very costly debt. But today’s report from the Federal Reserve that showed the first increase in credit-card debt since the month before Lehman Brothers failed is being viewed as just that – a positive sign about the economy.

In December,  credit-card debt rose $2.3 billion to $800.5 billion – the first monthly increase since August 2008. This, combined with a recent Fed survey that found banks were becoming more willing to make installment loans, has some wondering: Has the consumer stopped de-leveraging?

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The incongruity wasn’t lost on the Federal Reserve chairman or the crowd.

“But before asking the last question, a couple of very important matters to take care of,” intoned the moderator at Fed Chairman Ben Bernanke’s rare press conference today in Washington at the National Press Club. “Want to remind our members and guests of future speakers. Harry Shearer, the comedian and humorist, a voice of ‘The Simpsons,’ will discuss media myths on March 14.

“And we might even try to get him to do a few voices for us,” the moderator added, according to a transcript.

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Every great government institution deserves a nickname. The U.S. Senate has been called the “world’s greatest deliberative body.” The House of Representatives is referred to as the “People’s House.”

True, these terms of endearment also have been much used ironically and cynically, depending on what’s been going on in those storied institutions. But, through thick and thin, the nicknames have lasted.

The president of the Federal Reserve Bank of Dallas may have on Wednesday, presumably without planning, come up with a terrific nickname, or at least a nickname idea, for the U.S. Federal Reserve. Richard W. Fisher spoke of the need to protect the integrity of our “delicate franchise.”

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In the U.S., the Federal Reserve’s plan to buy up to $600 billion of government bonds in an effort to stimulate the economy met with mixed reviews. In some parts of Asia, like Hong Kong, the reaction isn’t mixed – it’s not liked at all.

Donald Tsang Yam-kuen, the chief executive of Hong Kong, was quoted in the South China Morning Post as being very critical of the plan. The Fed purchases are designed to lower interest rates in the U.S. And that is intended to make money less expensive to borrow, which gives people more money to spend. But what worries the HK chief executive is that investors looking for higher returns will turn to Asian markets and inflate stock, bond and property markets. “This has increased the risk of asset bubbles,” he was quoted as saying.

It is a dangerous balance. On one hand, the U.S. does need to do something to jump start one of the most important economies in the world and to the world. But if an asset bubble were to occur in Asia and a repeat of the financial crisis of 1997-1998 followed, that would do nothing to help the U.S. and global economic situation.

“It doesn’t do the chairman any good to have everyone sit around the table and tell him how smart he is” and that his policies are the right ones.

The chairman in question is Ben Bernanke, leader of the U.S. Federal Reserve. The speaker is James Bullard, president of the Federal Reserve Bank of St. Louis, who spoke today with a group of reporters and editors from Dow Jones Newswires and The Wall Street Journal.

The quote was a partial response to a question from this columnist, who offered the notion that Bullard seemed to be the pre-eminent member of a small club of central bank policy makers who have lately spoken more forthrightly on pertinent issues, such as quantitative easing, than is the tradition among central bankers.

Late last year, we referred to Bullard as a breath of fresh air for that very practice. And the recently installed president of the Federal Reserve bank of Minneapolis, Narayana Kocherlakota, sprinkled a recent speech with provocative talk about structural problems in the U.S. labor market, among other issues. Meanwhile, the president of the Federal Reserve Bank of Kansas City, Thomas Hoenig, has become the lone serial dissenter, insisting the economy is healthy enough to survive merely easy monetary policy, rather than the emergency zero short rates that we have had for some one and three-quarter years.

Substantively today, Bullard repeated his view that the Fed needs to stand ready to take further action if the economy falters and already below-target inflation dips more dangerously towards deflation. He believes the best way to achieve this would be through incremental purchases of Treasury securities. He said he doesn’t think further action will be needed.

Those views areen’t very different than those expressed recently by the aforementioned chairman, Bernanke.

Citing his own bona fides that include 20 years of monetary policy work (and two-plus years as the St. Louis Fed leader), Bullard said today Bernanke is not fazed at all to hear different ideas about the state of the economy and potential Fed responses.

As for outreach, much appreciated by journalists and of real value to all interested citizens, Bullard said the Fed needs buy-in to have effective policy.

“These are extraordinary times for monetary policy,” Bullard said, making it incumbent on people in the system to explain things as best they can. Bullard is currently a voting member of the policy setting Federal Open Market Committee.

Indeed, those policies will be more effective if they are better understood by the public, he said.

Another part of that impudent question went something like this: had there been any pushback in Washington against Bullard’s plain speaking. There’s been “no pushback at all,” he said.

It’s the minimalist Federal Reserve.

With a tad of old-fashioned ‘white out,’ the U.S. central bank could have taken its statement issued at the conclusion of its March 16 policy meeting and re-issued it today to mark the end of its latest interest-rate confab.

Even Thomas M. Hoenig, the honorable dissenter on the Federal Open Market Committee, if left to repeat his solitary stand meeting after meeting.

Hoenig, the president of the Federal Reserve Bank of Kansas City, doesn’t want much, just for the Fed to abandon its phrase that near-zero short-term interest rates will be kept in place for an “extended period.”

Hoenig’s understandable view, in my paraphrase:  the economy is recovering, if slowly, so why use language that would seem to lock you into a longish-term commitment to emergency low rates?

Take away that “extended period” language and you would let people know that at some point you will return to merely easy monetary policy.

But the rest of the FOMC voters see no reason to shut off Groundhog Day. After all, they said (again) that “inflation is likely to be subdued for some time.”

The Fed seems to have a pretty good read on the economy. Slightly better today than in mid-March but far from out of the woods. Today, the labor market is said to be “beginning to improve.” In March it was “stabilizing.”

“Housing starts have edged up but remain at a depressed level.” In March, “housing starts have been flat.” 

The key fact seems to be that “employers remain reluctant to add to payrolls,” in the words of the Fed. That hasn’t changed and will likely only change to the upside very slowly in the months ahead.

That crucial indicator, and its molasses-like improvement, will keep the Fed’s statement writers nearly idle for the next few meetings. Nothing much will need to be changed.

It was a banner day for market economists: Federal Reserve types were popping up and speaking everywhere.

We had past and present. Former Federal Reserve Chairman Alan Greenspan talked to the bipartisan panel trying to figure out the causes of the credit crisis. The ex-chief understandably defended his tenure and said high levels of reserves at financial institutions paved the way forward.

The current top central banker, Ben Bernanke, gave a stern warning about the need for a long-term plan to lower federal deficits, lest declining faith in the U.S. among investors push interest rates higher somewhere down the road.

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An interesting tidbit in the just-released minutes of the mid-March meeting of the Federal Reserve’s policy making group reinforces the notion that central bank thinking about asset bubbles is changing.

The minutes contain this quote about officials of the Federal Open Market Committee: “Members noted the importance of continued close monitoring of financial markets and institutions – including asset prices, levels of leverage, and underwriting standards – to help identify significant financial imbalances at an early stage.”

True, the Fed uses the word imbalances rather than bubbles and the list of what could go wrong and bears watching includes more than just asset prices.

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