Special report:
Eyes on the Fed Full coverage
Honeymoon over for Bernanke
Recent report shows the central bank chairman, committed to more openness, needs to choose his words more carefully.
By Grace Wong, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Federal Reserve Chairman Ben Bernanke came into his new job promising more openness but he seems to be learning the hard way that he's got to watch every word he says.

On Monday a TV report saying Bernanke felt that investors were misinterpreting his testimony on Capitol Hill last week spooked financial markets.

Fed Chairman Ben Bernanke
Fed Chairman Ben Bernanke
Bernanke on the brain
Signs the Fed may soon suspend its interest-rate hiking campaign could help investors during a tough week. (more)
The end of the Fed's interest rate-hiking campaign may not be so good for stocks, despite investors' bets. (more)
But Fed chief says the economy is healthy and that central bank may pause to assess new reports. (more)

"It's worrisome that people would look at me as dovish and not necessarily an aggressive inflation-fighter," CNBC anchor Maria Bartiromo quoted Bernanke as saying, according to a report that said Bernanke made the comments to her over the weekend at the White House correspondents' dinner in Washington.

The Federal Reserve declined to comment on the report.

"The news hit the tape as a complete surprise and it blew up because it was unexpected and sort of clumsy," Pierre Ellis, chief economist for global bond trading at Decision Economics, said Tuesday morning.

Bernanke needs to choose his words more carefully and they should always be to the public, Ellis said. "Bernanke was quite free as a (Fed) governor but he can't do that now. If he does, it's going to be a different regime with more volatility" in financial markets, Ellis added.

It's unclear what Bernanke's intentions were since the Fed chief was quoted second hand in a non-public forum, but market observers said he needs to watch his step.

"Everyone has been lauding him since he has become chairman as being very clear," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson. But it's starting to look like investors may need their dictionaries to decipher his comments, she added.

When the CNBC report aired late Monday, stocks sank and bonds fell a bit further as investors bet the central bank may not be as close to pausing in its interest-rate hiking campaign as has been widely assumed on Wall Street. (Full story.)

Rookie mistake?

There's little question of Bernanke's credibility with most investors but his latest comments were raising some eyebrows Tuesday morning.

"I don't know if this is a rookie mistake or if this was a mistake made by an academic in the real world, but it's very disappointing," D. A. Davidson's Hurley said.

If Bernanke wanted to send a message to the market, there were several other channels available to him. For instance, he is scheduled to speak Wednesday and could have used that opportunity to clear up any perceived misunderstandings about his comments to Congress, she said.

Bernanke told Congress last week that further interest-rate rises will be "increasingly dependent" on economic data and policy-makers could at some point pause in their 22-month credit-tightening campaign to assess the outlook. (Full story.)

That testimony led many on Wall Street to believe the Fed could end its 22-month rate-hiking campaign as soon as June. (Full story.) Higher rates make things more expensive for businesses and consumers and are thus seen as negative for stocks.

The Fed is set to meet next Wednesday, and policy-makers are widely expected to raise the target for the central bank's key short-term interest rate to 5 percent -- which would be the 16th straight increase.

But investors are still coming to terms with what kind of chairman Bernanke will be, and the commotion surrounding the report of his comments, should die down as economic reports come back into focus, Fed watchers said.

"He has said the data will ultimately force his hand, and in the end that is what the market will react to," said Lundy Wright, managing director in charge of government trading at Nomura Securities.


End to rate hikes could end rally. Click here.

Oil pressure is on: More here.

Click here for the latest on the Fed. Top of page

Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?