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Bernanke heads to the Hill
After nearly six months in the hot seat, plainspoken Fed chief needs to show more consistency, analysts say.
By Grace Wong, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Next week Ben Bernanke heads to Capitol Hill, where he'll have an opportunity to give investors something they haven't seen much lately: consistency from the Federal Reserve.

Like other Fed chiefs before him, Bernanke's first six months at the helm of the central bank have taken markets for a rocky ride.

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Since he took over from Alan Greenspan on Feb. 1, Bernanke has sparked wide swings in the stock market; it has been common for the blue-chip Dow to sink or climb by 100 points or more in a given session in recent months.

Market watchers say the volatility is in part related to the transition from one Fed chief to another, and that ride will become smoother as investors get more used to Bernanke's plain-spoken style.

A study released last month by Macroeconomic Advisers, a firm that specializes in macroeconomic forecasting and policy analysis, showed Bernanke "has had a considerable influence on financial market prices in recent months," as measured by movements in the yield on the two-year Treasury note before and after his speeches and testimonies.

But Greenspan caused similar amounts of volatility in the markets during his tenure as Fed chairman, the study's authors, former Fed Governor Laurence Meyer and former senior Fed economist Brian Sack, said.

While Bernanke has been more straightforward than the cryptic Greenspan, his comments haven't always been consistent, according to John Norris, chief economist with Morgan Asset Management.

"The problem hasn't been with FOMC statements so much as Bernanke's comments following them," he said.

Bernanke on the Hill

On Wednesday and Thursday, Bernanke will make his semi-annual appearance before both houses of Congress and testify on monetary policy - giving him a chance to offer a more unified view on the interest rate outlook, analysts say.

Financial markets still aren't sure what Bernanke is using to influence policy decisions, which is part of the reason why markets have jumped around, analysts said.

"Not everyone has a Bernanke decoder ring," said Paul Nolte, director of investments at Hinsdale Associates, a money management firm.

"If he is able to elucidate what he is looking at, it would give investors a feel for where he's coming from," Nolte said.

Markets are still learning how to adjust to Bernanke's style, and next week's testimony gives Bernanke an opportunity to define more thoroughly what the Fed is looking at and where it's going, according to Mary Ann Hurley, vice president of fixed-income trading at investment firm D.A. Davidson.

Bernanke's comments on the Hill have surprised investors in the past. When he appeared before Congress in April, he delivered testimony that led many on Wall Street to believe the Fed was getting ready to wind down its rate-hiking campaign - a possibility that hadn't been hinted in previous Fed statements.

Market watchers said they would be surprised if this time around, Bernanke deviates widely from the latest Fed policy statement, released June 29.

In that statement, central bank policy-makers said the economy is moderating (read: slowing) and that economic numbers would influence future moves. (Read the statement.)

"I expect his word usage will be very succinct and correspond to [the Fed policy statement]. More than likely he will toe the line," Norris said.

Watching his words

Overall, it's too early to say whether Bernanke is doing a good job as Fed chief, analysts say. Since monetary policy operates with about a six to nine-month lag, Bernanke's first hike still hasn't taken effect in the marketplace yet, they point out.

But he's certainly more aware of the impact his words have on investors around the world.

"I think he's learned his lesson; he has to cloak his language," Michael Pento, senior market strategist at investment advisory firm Delta Global Advisors, said.

"He can't arbitrarily divulge his intentions to certain reporters," Pento said, referring to comments Bernanke made to a CNBC anchor in May about investors mistaking him as being dovish on inflation.

Since that blunder, Bernanke and other Fed officials have gone on an inflation offensive - and roiled markets in the process.

Bernanke may be learning how to communicate with markets, but at least one analyst thinks there's a price to pay for learning on the job.

"I think Bernanke and other Fed members have basically boxed themselves into a corner, meaning they have committed themselves to more rate increases regardless" because of the need to beef up their inflation-fighting credentials, Hurley said.


Related: Forget Bernanke. Earnings are key Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.