OLD Media Moves

Interpreting the new Fed isn't clear yet

May 10, 2006

With new Federal Reserve Board chairman Ben Bernanke, the investing world has had to learn how to decpiher his public statements and understand what he, and the Federal Open Market Committee, is saying when it announces its rate decisions.

Business journalists, after 17 years of interpreting former chairman Alan Greenspan, now have the same task. Judging by today’s coverage of the Fed’s move to raise interest rates, they’re still trying to figure out what message Bernanke is trying to deliver to the markets, and to consumers. If you look at this afternoon’s coverage, some media reporters conflict with what other media reports are saying. That means, as we saw last week when Bernanke talked to CNBC’s Maria Bartiromo, that the business press has yet to figure out where Bernanke is headed.

MarketWatch reporters Gregg Robb and Rex Nutting write that today’s decision “left the market in the dark about whether it would raise rates again.” Later, they write, “Financial markets were initially disappointed there was not a clearer sign that the Fed would pause in its campaign rates hikes, but gradually warmed to the statement as the day went on.”

Federal ReserveAssociated Press economics writer Jeannine Aversa came up with the same angle. She wrote that the Fed “suggested what happens next will be much less predictable. Chairman Ben Bernanke and his Fed colleagues left their options wide open to order yet another increase or to take a break in their two-year rate-raising campaign.”

Reuters’ Tim Ahmann, however, leaned in his coverage to the theory that the Fed may pause its rate hikes in the future, noting a “possible rate pause.” He also said that the markets were not happy with the rate hike increase on Wednesday. Ahmann wrote, “While the decision was widely expected, the carefully crafted statement from the FOMC, which was meeting for only the second time under new Fed Chairman Ben Bernanke, was a bit more hawkish than financial markets had expected.”

Bloomberg News’ coverage, however, said that the Fed may not be finished with its rate hikes. Scott Lanman wrote, “Additional increases “may yet be needed,” the Fed said, even as the central bank forecasts economic growth to slow from the first quarter’s 4.8 percent annual pace, the fastest in more than two years.”

Meanwhile, the media coverage of the event is also being scrutinized by the traders. Rob Hanna, a principal in a money management firm in Massachusetts, writes that CNBC was making too much of one word in the Fed’s statement.

Hanna wrote, “CNBC seemed to focus on the addition of the word ‘yet’ which changed the beginning of the sentence from ‘further policy firming may be needed’ to ‘further policy firming may yet be needed’. My old English teacher (Ms. Malorek) would say they mean the same thing. If I handed in a paper with ‘yet’ in it, it would come back to me with the word crossed out and a note saying I was being too wordy. In this case there may be a subtle difference, but I basically agree with Ms. Malorek. It isn’t too significant. As a trader, the second part of the sentence is what is of major importance to me.

“…the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.�

“In other words, they may raise rates again in June. They may not. It’s going to depend on the data. Since the next meeting is June 28 & 29th, that means there will be plenty of economic data between now and then. It also means that the market will be on data watch. I expect we may see some real whipsaws in the next seven weeks as every big market player suddenly begins doubling as an economist. These whipsaws will likely be nothing but noise, but should create some tradable opportunities. Traders should be on alert.”

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