Bernanke Briefings May Offset Fed Hawks With Words as New Tool

When Federal Reserve Chairman Ben S. Bernanke convenes his first press conference next week, he may emphasize a point the markets seem to have forgotten: He’s serious about keeping interest rates low for an "extended period."

Futures markets in Chicago see a 29 percent chance of a rate increase by December, and Eurodollar contracts on interbank lending predict rates of 0.5 percent by year-end -- an imminent tightening encouraged by an inflationary uptick and suggestions from some regional Fed presidents that rates should rise soon.

“Yet again the market is running way ahead of the Fed,” said Julia Coronado, chief economist for North America at BNP Paribas SA in New York and a former Fed economist. “Bernanke’s press conferences will help mitigate the influence of some of the FOMC members who are further away from consensus and yet very, very vocal.”

The briefings -- after the Fed’s two-day meetings in April, June and November this year -- may allow Bernanke, like his colleagues in Europe and Japan, to steer or even correct market expectations by making him the first official to explain any central bank actions. Regional presidents who don’t necessarily represent the Fed’s consensus, including Kansas City Fed President Thomas Hoenig, often have spoken first.

Bernanke and his chief deputies on the Federal Open Market Committee -- Fed Vice Chairman Janet Yellen and New York Fed President William C. Dudley -- have used speeches in recent weeks to knock back investor perceptions, based on remarks by Hoenig and several other FOMC members, that the central bank may raise rates before year-end. They have countered that the committee’s leadership believes the threat from accelerating prices will prove “transitory.”