If Alan Greenspan thought he was the Chosen One, then his successor Ben Bernanke hopes to be Everyman.
chairman wants us to relate to him. His mission is to reach the average American, and he has made it very clear that when he takes over as chairman on Feb. 1, we can expect more transparency in his federal policy making.
Does that mean a stock market crash by Valentine's Day?
Hardly. Just because his policy making will be transparent doesn't necessarily mean it will be any different. "The current expectation is that he'll pick up the baton where Greenspan left it off," says Keith Gumbinger, vice president of HSH Associates of Pompton Plains, N.J., which tracks a variety of loan products. Don't expect to see any abrupt changes in the beginning.
Besides, Bernanke will need time to cozy up to the rest of the board before he can truly spread his wings. So odds are good that he'll continue Greenspan's work in the short term.
But what should be noticeably different from the get-go is that you and I might actually start to understand what goes on in those Fed meetings.
This clarity might be most evident through Bernanke's inflation policy. Sure, Greenspan's team had an inflation target. We just didn't know about it, and he didn't want us to, lest he be held accountable for reaching a certain number. Greenspan's inflation forecasting was written in the Fed's reports to Congress. But have you ever tried to read one of those reports? You're better off translating Russian into German. The only people slogging through those Federal Reserve testimonies are financial market pros with lots of time on their hands.
Quite frankly, Greenspan never really cared if Joe America understood what he was saying.
On the flip side, Bernanke wants us all to realize what he's talking about, says Zoltan Pozsar, an economist at Economy.com. Bernanke is a proponent of having a targeted inflation rate as part of Fed policy, and he's going to come right out and explicitly tell us his goal. And whether he uses the consumer price index or the personal consumption expenditures index to reach that target, it doesn't matter.
"He's open to what the economy is telling him," says Chris Burdick, director, economic analysis, at the Charles Schwab Center for Investment Research. "He proposes risk management and will respond accordingly."
Bernanke has made it very clear that over next three to four years he's aiming to keep inflation at an average of 2%. There, now you know.
But more importantly, Bernanke wants to manage inflation expectations. Because, let's face it, if the media start screaming, "Inflation is coming! Inflation is coming!" we're going to panic -- even if we don't truly understand what that means. It just sounds bad.
So we're going to react, even if the fundamentals tell us we're wrong. So that might mean a slowdown in purchasing, or even an increase in savings. Either way, it translates into a decrease in the money supply, and that's not a good scenario either. So Bernanke wants to bring in the general publicas partner in this quest and help us understand, says Pozsar.
But he has his work cut out for him, because inflation is a tricky subject. Here's a quick primer. Back in the day, inflation used to refer to a rise in the money supply, which generally led to a general increase in prices, mainly because consumers had more money to spend. However, over time, the definition of inflation has cut to the chase and come to mean the actual rise in prices itself. So now when people mention inflation, they're referring to the increase in the general level of prices.
Inflation happens for lots of reasons. Maybe the supply of something drops -- such as the decrease in natural gas because of a hurricane. Inflation could also be caused from an increase in the demand for something -- such as lumber to rebuild those hurricane-afflicted areas. Either way, it throws the economy off.
Big Ben wants us to understand this stuff because it helps us make smarter choices, and that keeps the market on an even keel. So start paying attention to his upcoming speeches. He uses a much more folksy tone that you'll most likely understand.
In the end, Bernanke wants his policies to be crystal clear. And remember, the guy's a former professor. So hopefully he'll follow through on his transparency pledge and we'll all benefit from it.
So at a time when people are unsure of where the markets are going, Everyman might be the guy to help us out.
Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for wsj.com and the New York Post and her work has appeared in SmartMoney and on CBS MarketWatch. Prior to freelancing, she spent four years as a senior writer for TheStreet.com. Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University. Byrnes appreciates your feedback;
to send her an email.