Washington – Federal Reserve Chairman Ben Bernanke said Tuesday he suffered a “lapse of judgment” by talking to a CNBC reporter recently, a conversation that caused the stock market to tank after his comments were reported.
Sen. Jim Bunning, R-Ky., asked Bernanke about the episode during a Senate Banking Committee hearing on financial literacy.
“Senator, that episode you refer to was a lapse of judgment on my part,” Bernanke replied. “In the future, my communications with the public and with the market will be entirely through regular and formal channels.”
Bernanke took over the Fed job Feb. 1. In a congressional appearance April 27, he raised the possibility that the Fed might pause its two-year credit-tightening campaign. Stocks rallied that day.
But on May 1, CNBC reported that Bernanke had told a CNBC reporter that investors had misinterpreted his recent congressional remarks as an indication that the Fed was nearly done raising rates.
Stocks – which had been up for most of the day – slumped.
Besides raising questions about Bernanke’s communications skills, the incident underscored the fact that a single word uttered by a Fed chief can move stock and bond prices.
At Tuesday’s hearing, Bunning, who opposed Bernanke’s nomination as Fed chief, said: “I warned you to be careful about what you say because people are going to follow your words very closely.”
Bunning also took issue with the Fed’s decision to push interest rates higher to fend off inflation. The Fed’s last rate hike, on May 10, left a key rate at a five-year high of 5 percent. It marked the 16th increase since June 2004.
Bernanke defended the action. He pointed out that he and his Fed colleagues at the May meeting noted there were some inflation risks to the economy.
In terms of the Fed’s next rate decision in late June, though, Bernanke said the Fed will rely heavily on what incoming barometers say about inflation and economic activity.
Between now and then, “we’ll be watching that data very carefully,” Bernanke said.
