Thursday, March 01, 2007

Bernanke reassures jittery investors

You earn your stripes in battle and the US Fed Chairman Bernanke is earning his in the world's largest economic landscape of the United States.

At the start of his tenure, Bernanke, took some missteps. In his third month on the job, Bernanke testified to the Joint Economic Committee that the Fed might pause hiking rates for a month or two, even if it determined that inflation still posed a greater threat than an economic slowdown. To the markets, that seemed clear enough, and stock prices rose.

But in a casual conversation the following weekend, Bernanke told CNBC reporter Maria Bartiromo at a Washington party that markets misinterpreted his remarks before Congress. Bonds and the dollar tumbled when CNBC reported the conversation.

Bernanke has been careful not to repeat that gaffe. "In the future," he promised the Senate Banking Committee, "my communications with the public and the markets will be entirely through regular and formal channels."

Apart from this one gaffe, Bernanke has given a stoic performance to steer the US economy forward and keep inflation low. But following his illustreous predecessor Alan Greenspan who has broken tradition by being outspoken, is not an easy act.

Bernanke's carefully worded reassurances at a question-and-answer period during congressional testimony Wednesday enhanced his stature with investors, one day after the stock market's biggest slump following Greenspan's "recession" comments in Hong Kong.

This isn't a clash of the titans. The former Fed chairman and the current central bank chief might not be as far apart on the state of the economy. In Hong Kong, Greenspan was responding to a question by saying it was "possible" the U.S. economy would go into recession.

A senior economist at Bearns and Sterns noted that Greenspan's other recent comments have actually been more upbeat, not less, than Bernanke's. If you were to ask any economist if there was a possibility of recession, they're going to say yes.

So this time the speculators as usual got it all wrong.

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