Ben Bernanke, chairman of the Federal Reserve, gave a news conference last week. Since then mortgage rates have jumped about half a percent along with 10 year treasury notes. The stock market is also down. Interestingly, Bernanke appeared to be trying to calm things down and did his best to provide the detail that analysts, investors, and the press wanted without really changing anything that he had said before. My first reaction is that when the Fed is asked for more clarity, they are really being asked for a secret signal for when the rats should get off the ship. So Bernanke, like the public health officials trying to communicate about vaccines, is a risk communicator.
On June 26, 2013, David Wessel wrote his Wall Street Journal column “Capital” about Bernanke’s efforts, and provided some interesting comments. Wessel indicated that maybe Bernanke did not “appreciate how hard it is to predict how markets will react to lengthy explanations.” Or perhaps markets were just ready to change course and “Mr Bernanke provided the moment.” Fuzzy trace theory seems to have a place here. Over the last few years, Bernanke’s gist has been that the fed among all possible actors would do whatever it could to help the economy and reduce unemployment. His lengthy explanation last week indicated that he had been thinking a lot about being ready to change this. Maybe that changed the gist from full speed ahead to easing off. The slightly more complicated message changed the gist.
Goldman Sachs boss Lloyd Blankfein whose economists interpreted the news conference as “a hawkish surprise” was quoted by Wessel as saying before the news conference: “Even if the Fed wants to change its rate slowly, at the first indication of change, the markets will change it quickly. If you want to handle that in the best way, you create a little bit more uncertainty in the market in the less aggressive, less jarring way.” We can hope that Bernanke is so confident about the economy that he thought that it was time to muddy up the gist and shake some of the “irrational exuberance” out of the markets. If the economy sputters, I hope that Bernanke can go back to a memorable positive gist to renew confidence about the Fed’s actions.
Blankfein makes an interesting point when he notes that at the first indication of change, the markets will change quickly. This is almost like a phase change in physics where ice melts. You do not have to change the temperature much to have a completely different situation on your hands. Public health vaccination communicators are concerned that this could happen with viral messages on the internet that undermine the advances made by vaccination programs.