Is the Fed Too Open? From Kremlinology to “Wednesdays with Ben”

Watching reporters grilling Federal Reserve Chairman Ben Bernanke on Wednesday afternoon after the central bank surprised the markets by making no change to its current policies, my mind went back to the late nineteen-eighties, when I first started writing about the Fed. In those days, the central bank’s policymaking committee operated largely in secret. It didn’t publish the results of its meetings until weeks after they had taken place. The Fed issued economic forecasts just twice a year, when the chairman appeared on Capitol Hill. And except in extreme cases, such as immediately after the stock market crashed in October, 1987, the policymakers didn’t put out press releases.

Reporting about the Fed was bit like Kremlinology. Alan Greenspan, the Fed chairman at the time, didn’t grant on-the-record interviews, and the notion of him holding a press conference after a policy meeting would have been unthinkable. To find out whether the central bank had changed its interest-rate target, Wall Street monitored the New York Fed’s trading desk. When the Fed was trying to bring down rates, the desk would buy bonds and inject money into the banking system. When the Fed was trying to raise rates, the desk would sell securities, thereby draining money from the system. As with Kremlinology, there were a number of outside experts—known as “Fed watchers”—who claimed to know what was really going on, although it wasn’t clear whether they did or not.

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