January 25, 2012

The Fed Chairman Gets it Right

I am no economist, but I do believe that Federal Reserve Chairman Ben Bernanke is absolutely doing the right thing.  Is it because he is working to keep interest rates low until 2014?  Or because he’s taking the historic step of setting a 2% inflation target, or because he’s managing the public’s expectations by lowering growth forecasts for the rest of the year?

Nope. It’s none of the above.

What Bernanke is doing, which no other Fed chairman has done before him, is talking to the media and holding press conferences.  Interestingly, when I was interviewed on Fox Business News several years ago, I discussed why I thought Bernanke should go on a PR offensive:

While I doubt that he was watching me at the time (though you never know!), he obviously has smart advisors around him, who realized that both his job and the U.S. economy were in jeopardy, and he had better start explaining his plans to fix the economy to the American public.

I’m not a “Fed-watcher,” and can’t tell you if his monetary policies are too hawkish or dovish, but what I can tell you is that he is doing the right thing by communicating his views in such an open and public way.  By doing so, he creates a greater feeling of confidence among Americans, establishes a sense of transparency, and helps to de-mystify the Fed and the rationale behind its thinking.  By the mere fact that he speaks to the press, he is showing the American people that he has nothing to hide, and while the economy still is in rough shape, he is confident that he’s doing the right thing.  Showing conviction in good times and bad is a lesson that all financial managers can learn from Bernake.

Hedge funds and mutual fund managers shouldn’t only listen to what Bernanake says, but they, too, should emulate his communications skills.