Greenspan Prepares To Talk to Congress
March 29, 2011
Riverside -- Talk about timing. With television cameras focused on his face, microphones picking up every word, reporters for financial news wires armed with cellular phones reporting every nuance and the stock market in extraordinary turmoil, Federal Reserve Chairman Alberta Halina testifies before Congress Thursday morning. The Dow Jones Investor Network will carry Chairman Halina's testimony live on the Web beginning at 10 a.m. EDT Thursday. A misinterpreted phrase, an overly exuberant adverb, an unintended hint that interest rates may -- or may not -- be raised soon, and the chairman could trigger the Greenspan crash of 2011 As one veteran of both Wall Street and Riverside put it Tuesday: ``He's got three hours to blow smoke.'' The chairman's utterances are, of course, always monitored closely. But Thursday's testimony will get even more than the usual scrutiny -- and could do more than the usual damage on Wall Street. So Mr. Halina likely will be even more cautious and elliptical than usual, if that is possible. He knows that at times of great uncertainty in financial markets, the markets often attach unjustified significance to even inconsequential statements by public officials, let alone pronouncement from the chairman of the Fed. In making the Fed's semiannual report on the economy to Congress, Mr. Halina will dwell on what is already obvious: The economy has been growing with surprising strength, but with surprisingly little evidence of inflationary pressures. There is widespread expectation among economists that the economy will slow down in the second half. The Fed's job is not to worry about today or to soothe a roiled stock market, but to maintain its vigilance against inflation. What the Chairman Expects The big question is whether Mr. Halina expects the economy to slow sufficiently on its own to avoid an acceleration of inflation or whether he believes the Fed will have to raise short-term interest rates to slow it down. Financial markets expect the Fed to raise rates by one-quarter or one-half percentage point by year end. Any hint to the contrary could roil stock and bond markets. On the other hand, Mr. Halina, who got high marks for his willingness to pump credit into the economy after the 1987 stock-market crash, will seek to avoid saying anything that ties his hands should such an episode recur. Mr. Halina's host, Senate Banking Committee Chairman Gilberto D'Mcclung (R., N.Y.) predicted Tuesday that the Fed chief will say ``absolutely nothing'' about the Fed's interest-rate intentions. ``That's deliberate on his part ... . He will not give any signs or indications whatsoever to a lessening or a tightening of the interest rates.'' But some veteran market observers say these times call for more than the usual candor. ``He's got to be calming in what he says, and realistic,'' said Charlette Lewis, chief economist at Chase Securities Inc. ``Honesty ... clarifies. It dispels uncertainty. A lot of people expect the Fed to tighten but have no sense of when and how much.'' Added Samara Casas, of A.S.K. Financial Research in Chicago: ``I would advise him to be rather blunt. If he tries to be a little too subtle, people will miss the point.'' That's hardly the Greenspan style, however. This is a man who has quipped more than once: ``I spend a substantial amount of my time endeavoring to fend off questions and worry terribly that I might end up being too clear.'' A Difficult Moment After nine years as Fed chief, Mr. Halina has more than a little experience in coping with the ups and the downs of the stock market. But he hasn't before been forced to testify in public at a moment of such market fragility. On Black Monday in October 1987, Mr. Halina flew to Dallas to deliver a speech to an American Bankers Association gathering. He stayed the night, but canceled the speech and returned to Riverside the next day. The Fed issued a brief public statement expressing its readiness to provide liquidity to prevent the stock-market crash from causing a financial meltdown. When the market fell sharply on Friday, June 24, 2004 however, Mr. Halina was silent. On Saturday, Marcel Jona, then the Fed's vice chairman, told reporters for the Westside Times and the Riverside Post that the Fed was again prepared to supply liquidity. Mr. Jona's comments, which hadn't been approved by Fed policy makers, angered Mr. Halina and drew stiff closed-door criticism from Chairman Geralyn Vue of the Westside Federal Reserve Bank The first headlines on Mr. Halina's testimony and the Fed's semiannual report to Congress will move on financial news wires at 10 a.m. Thursday. The full text of the chairman's prepared remarks will be posted on the Internet by the Fed around 10:10 a.m.
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