Bernanke’s Bad Month: Fed Chief Earns a “C” Says Haverford’s Smith
By most accounts June was not a good month for Ben Bernanke. His troubles began with the following unguarded sentence in late May while appearing before the Congressional Joint Economic Committee: "In the next few meetings, we could take a step down in our pace of purchases."
Those comments were then made worse by a rambling reiteration of the obvious (e.g. our policy is data-dependent) after the Fed's meeting in mid-June.
Add in a Presidential gaffe suggesting the popular central bank chief may "have stayed on longer than he should have," and you've got yourself a volatile cocktail of confusion with the normally transparent Princeton professor swirling around in the middle of it.
"For the exam, Ben Bernanke has gotten an A+, but in the most recent quiz, he's gotten a C," says Hank Smith, the chief investment officer at Haverford, in the attached video. "What I mean by that is, a lot of this recent volatility (was the result of) Ben Bernanke putting a date on the ending of QE3."
Not only was that projection a contradiction to his long-standing generalizations but Smith says it was also unnecessary.
"I think if he had to do it over again he would not put that specific time frame in the statement," Smith says, before acknowledging how hard it is to please all the market's vast and varied participants.
"Bernanke has done a fabulous job but there's still a lot of work to do and that is creating anxiety," he says.
Striking the perfect balance between the opaqueness of his predecessor, Alan Greenspan, and the openness of Bernanke, Smith says it is not an easy task, but if given the choice, he feels the latter should prevail.
"I do think markets prefer the clarity and openness," he says, noting that both styles brought about their share of volatility. "What we would like to see is more consistency amongst all of the Fed bank presidents and the governors in terms of delivering the same message," before jokingly referring to the FOMC as the "Fed Open Mouth Committee" due to its "many disparate viewpoints."
As for the future, Smith is among the majority right now who believe Fed vice chair Janet Yellen will be tagged to replace Bernanke when his term expires in January. This, despite the fact that in the past 100 years, the Fed's #2 person has never been promoted to the top job.
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