Bernanke: Look like you know what you're doing even if you don't
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One of the sayings of aspiring Wall Street masters of the universe goes like this: "Fake it till you make it."
It seems our Fed chairman may feel the same.
The Fed waits years to release certain of its transcripts. Today, it released the transcript of its Federal Open Markets Committee meeting of Jan. 28, 2004. The transcript contains a rather shocking admission from Fed Chairman Ben Bernanke. He said:
"A good rule of thumb is to try to look as if you know what you're doing even if you're not entirely sure."
Once you get over the shock value, context is important. Maybe Bernanke -- not necessarily known as a laugh riot -- was making a joke.
After all the economy appeared to be in pretty good shape in January 2004. The housing bubble was happily bubbling away. The official unemployment rate was an acceptable 5.7 percent, a full four points below where it is today, and on its way down. The Fed's federal funds rate was hovering in the cheap-money rate of between 1 and 1.25 percent.
UPDATE: For further context, here is the entire excerpt. The Fed had been been saying it expected to keep rates low for a considerable period, and was having a debate about whether to remove that language from its statement:
"With your permission, I’d like to add one thought on the 'considerable period' language that we’ll be discussing later. A good rule of thumb is to try to look as if you know what you’re doing even if you’re not entirely sure. We properly emphasized that 'considerable period' refers to economic time, not calendar time, and we made our commitment explicitly conditional on low inflation and resource slack. We can debate whether or not the intermeeting data, including the December jobs report and very low inflation numbers, suggest improvement on those two dimensions. However, the bond markets clearly believe that they do not, as yields have fallen significantly and the expected date of Fed tightening has been pushed further into the future. Hence, as our conditionality is not perceived to have been satisfied, we have no fig leaf for dropping the 'considerable period' language today. I would rather wait until March and the presumption that we will see at least one good payroll number by then. In short, I’m looking now more at long-term credibility issues rather than short-term flexibility and tactical issues. Of course, if we don’t see a strong payroll number by March, then we might be glad that we didn’t drop the language. Thank you."
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April 30, 2010; 2:45 PM ET
Categories: Fed Reserve , The Ticker | Tags: Ben Bernanke, Federal Open Market Committee, Federal Reserve System, Monetary policy, Real estate bubble, Twitter, Unemployment, Wall Street
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