Monetary Policy: All Talk!

“When I was at the Federal Reserve, I occasionally observed that monetary policy is 98 percent talk and only two percent action”

The above is the catchy opening line from Ben Bernanke, previous Chairman of the US Federal Reserve, on the inauguration of his new blog. In essence, what he is saying is that central bank governors largely affect market expectations of future policy through their public statements. Think Mario Draghi and his “do whatever it takes” speech.

“Now that I’m a civilian again, I can once more comment on economic and financial issues without my words being put under the microscope by Fed watchers”.

While Bernanke will certainly have much more freedom to express his opinions without causing market tantrums, his views will still carry huge weight among financial market participants. After all, he is the man behind the Fed’s bloated balance sheet, up from $869 billion on August 8^th 2007, when the financial turmoil began, to around $4.5 trillion today.

A clear exit strategy is yet to be navigated, so as the man who chartered the first leg of the journey, what he has to say matters and should make for interesting reading. Particularly if the proverbial ‘ship’ hits the fan!