Bernanke Speaks English, Not Greenspanspeak

The new Chairman of the Federal Reserve, Ben Bernanke, delivered his first report to Congress on Wednesday. There weren’t any real bombshells regarding economic policy or Fed perceptions about the economy. However, the top story here is that Professor Bernanke speaks English rather than the gobbledygook his predecessor turned into such a high art. It’s a victory for transparency.

Alan Greenspan spent 18 years as Fed Chairman, and Wall Street still is trying to parse some of his sentences from Year One. As Wikipedia’s entry on him explains, “U.S. News & World Report reported that, ‘Few can confuse Wall Street as thoroughly as Federal Reserve Board Chairman Alan Greenspan can.’ [3] Greenspan was sometimes so hard to understand that the Motley Fool radio show included a game called ‘What Did the Fed Chief Say?’, where contestants were challenged to interpret snippets of Greenspan's speeches[4]. Greenspan mocked his own speaking style in 1988 when he said, ‘I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I said’.” [notes in the original]

Thus, Professor Bernanke stunned the people on Capitol Hill when he spoke and when there was no misunderstanding him. “Inflation, as measured by the price index for personal consumption expenditures excluding food and energy, is predicted to be about 2 percent this year and 1-3/4 percent to 2 percent next year. While considerable uncertainty surrounds any economic forecast extending nearly two years, I am comfortable with these projections.” He thinks inflation is going to be around 2% through 2007.

Or this, “Although the financial condition of the business sector is generally quite strong, several areas of structural weakness are evident, notably in the automobile and airline industries. Despite these problems, however, favorable conditions in the business sector as a whole should encourage continued expansion of capital investment.” Things are going to be pretty good, but metal-bashing industries are not where it’s at, dudes.

The Greenspanspeak isn’t entirely forgotten, though, “As always, however, translating the Federal Reserve's general economic objectives into operational decisions about the stance of monetary policy poses many challenges. Over the past few decades, policymakers have learned that no single economic or financial indicator, or even a small set of such indicators, can provide reliable guidance for the setting of monetary policy.” Translation: “We’re winging it – or are we?”

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