What a difference from the good ol’ days of Alan Greenspan.
The longtime head of the Federal Reserve was also famous for opaque and impenetrable sentences in his public utterances. It was a cottage industry to untangle what he meant when he talked to Congress, as the Fed chairman must do twice a year.
The legend is now only that, as his successors Ben Bernanke — originally appointed by President George W. Bush — and President Barack Obama’s new appointee Janet Yellen are trying to show that the Fed can be transparent.
That’s good news in general, because too much mystery in the Fed’s discussions of the economy and interest rates can lead to pushback from populist demagogues of left and right. An independent rate-setting central bank is fundamental, and notions of “auditing” the Fed pushed by fringe elements in Congress intrude politics into its discussions in a way that hurts the stability of not only this nation’s economy but the globe’s business affairs.
Yellen gave a most unGreenspanian outline to Congress last week. The Fed may begin raising rates from lows near zero but it will prepare financial markets, she said. Its continuing use of the word “patient” means a rate hike is unlikely for at least the next two meetings.
That’s not the kind of definition that Congress heard from Greenspan back in the day.
Yellen added that even when the Fed eventually drops the use of “patient,” that will not necessarily translate to an imminent rate increase. Rather, it will indicate that the Fed can start considering rate hikes flexibly on a “meeting-by-meeting basis.”
Beyond openness, the caution on raising rates feels justified just now because of conditions near home in Louisiana and far abroad.
The drop in the price of oil has some significant benefits for Louisiana’s giant petrochemical industry but it has had a dampening effect — and perhaps that is a mild term, worthy of Greenspan — on the energy production and oilfield services industries in our state.
Further, although the U.S. Department of Commerce reported an upsurge in exports for Louisiana in 2014, the markets for many of our products are abroad where longer-term prospects are not encouraging. Europe, China, Japan — all are struggling with growth below their expectations. Inflation is tame.
A pro-growth Fed policy, “patient” for now, is good news for the oil patch and for Louisiana just now. But we appreciate Yellen’s giving us fair warning should that change.