<SPECIAL FEATURE>August 17, 1999 When Greenspan Talks, People Listen
by Louis Corrigan
(TMFSeymor)
Of all the manifestoes delivered at
University of California-Berkeley over the
years, Alan Greenspan's speech on
September 4, 1998 may go down as the
one that actually saved the world. With the
financial markets melting down, our
mighty morphin Federal Reserve chairman
stepped to the podium and said, "Don't
fear, the G-man is here." Actually, it was
more like this: "Moreover, it's just not
credible that the United States can remain
an oasis of prosperity unaffected by a
world that is experiencing greatly
increased stress."
Sure, that's pretty oblique for a manifesto.
But to the Fed-watching cognoscenti, the
brief policy statement, which Greenspan
grafted onto an academic dissertation on
the new economy, plainly signaled that
Greenspan planned to cut the federal funds
rate, the rate banks charge each other for
overnight loans and which affect interest
rates on business and consumer loans.
"Everybody just went out of their minds,"
exclaims David Jones, chief economist at
Aubrey G. Lanston and a long-time Fed
watcher. The Friday night speech set world
markets afire and drove the Dow up 381
points when U.S. markets reopened.
Greenspan would go on to orchestrate three
quarter point cuts in the fed funds rate -- on
September 29, October 15, and November
17. These moves lubricated credit markets
sobered by liquidity and risk premiums,
and thus rescued the bull from the bear's
clutches.
The Fed chairman can be even more
transparent when he wants to be. In his
testimony to the Joint Economic
Committee of Congress on June 17, 1998,
he spoke of the need for "modest
preemptive actions" to head off "forces of
imbalance before they threaten economic
stability."
The Fed aims to keep the economy
growing nicely while keeping inflation in
check by nudging up interest rates when it
looks like price increases are outstripping
productivity gains, or soon might.
Greenspan's comments meant that when
the Federal Open Market Committee
(FOMC), the Fed's decision-making body,
met in late June, it would almost surely
raise the fed funds rate by a mere quarter
point (25 basis points) to 5%. (It did.) And
that meant the string of rate hikes that the
bond market was predicting might not
happen after all. The markets quickly
rallied.
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Next -- Interpreting Greenspeak:
Berry and Wessel
Interpreting
Greenspeak:
Berry and Wessel
by Louis Corrigan
(TMFSeymor)
The challenge for us, though, is that the
G-man typically speaks a language
grounded in suspicion. He rarely appears to
say exactly what he means or to mean
exactly what he says. Greenspeak is a
master at the art of equivocation. On the
one hand, his speeches read like a mystery
wrapped inside an enigma and julienned
into a Jamesian sentence which would put
my mom to sleep. On the other hand, they
give motivated deconstructionists plenty of
room to hatch whatever interpretations
they will.
Such slipperiness owes something to the
fact that he's taken an increasingly
pragmatic stance toward monetary policy
and wants most of all to preserve his
options. Then again, since markets move
on his after-dinner belches, who can blame
him for being coy? In any case, there
remains a market for skilled translators of
Greenspeak -- or better yet, commentators
who presumably have an ear not far from
Citizen G's own lips when he first whispers
"rate cut" or "rate hike."
"There have been a number of journalists
who seemed to be in the know for a
one-time deal," observes Fed watcher Kim
Rupert, senior economist at Standard &
Poor's MMS. But today, when the Fed
wants to leak something to the market,
John Berry of The Washington Post (The
Post) and David Wessel of the Wall
Street Journal "seem to be the major
sources on a consistent basis," she says.
By popular consent, Greenspan's leading
mouthpiece is Berry, who's been covering
the Fed for The Post since 1979. "It
appears that whenever the Fed wants
information to get out, he's one of the ones
that information goes to," says Richard
Cripps, chief market strategist at Legg
Mason. That's why Cripps eats up Berry
with his cornflakes each morning. John
Hague, managing director and portfolio
manager at PIMCO, home to the world's
largest bond fund, concurs. "The market
tends to react to his articles as if he has
special insight into the Fed," Hague says.
Investors went into a tizzy in the spring of
1998 at the prospect that Wessel had keys
to the temple that even Berry didn't.
Wessel's April 27 story carried this
headline: "Fed Ponders Rate Boost in
Months Ahead/With No Slowdown in
Sight, Officials Opted to Drop 'Neutral'
Stance in March." The leak of a shift in the
Fed's bias toward tightening spooked the
markets, sending the Dow down 147
points. The idea that Wessel had scooped
Berry had analysts puzzling over possible
dissent within the FOMC. Were the
inflation hawks trying to batter the markets
while G wasn't looking?
The next day, Berry confirmed Wessel's
report of the Fed's shift, but he included
this rejoinder: "Fed sources cautioned that
the central bank's decision to 'lean' toward
higher short-term rates doesn't necessarily
mean higher rates are on the way soon.
Though Fed policymakers agreed at the
March meeting that the economy seemed
to be overheating, subsequent reports have
suggested a cooling -- easing those
concerns."
Jones says he chuckled at the sheer
competition between the reporters. "Berry
probably called up his contact at the Fed
and said, 'Why are you giving this stuff to
Wessel? Why didn't you give it to me?'"
Other observers refer to the incident as a
case of "sour Berry." Nonetheless, the
market turned around and headed higher:
Berry had spoken. Or was it G?
"No one from the Fed called me," insists
Berry, who speaks with the deliberateness
of a man who's listened to too much
Greenspan. "This is one of those cases
where people read my things and say, 'Oh,
somebody at the Fed wanted to get the
word out and called Berry.' Well, no, they
don't call me," he says. "I wish they did."
But does he talk to G? "I won't comment
on that because the chairman only gives
off-the-record interviews." Naturally.
Wessel hums the same tune. "Almost all
stories that I've done on the Federal
Reserve are described by outsiders as if
they arrived in a sealed envelope with Alan
Greenspan's return address," he says.
"Well, I'm still waiting for that one. It just
doesn't work that way." So he's never built
a story around a leak? "I'm not sure I want
to get absolute about this," he says warily.
Greenspan does give periodic background
interviews to a select few Fed reporters,
including Berry and Wessel. It's also
widely believed that Greenspan sometimes
leaks a story to confirm the market's
interpretation of his remarks or to correct a
misperception. That's why some think the
piece Berry penned on April 28, 1998, was
initiated by Greenspan himself.
However, a "Fed sources" attribution
doesn't necessarily mean G himself.
Reporters rely on high level Federal
Reserve staffers, bank presidents, and
governors -- all Fed sources. They also call
on well-informed Fed watchers, from
former FOMC members such as Lyle
Gramley, Wayne Angell, and Lawrence
Lindsay to Wall Street economists like
Jones -- all "sources close to the Fed."
That creates a hierarchy of Fed stories. "If
it doesn't say 'according to Fed sources,'
then no one pays attention," asserts Jim
Bianco, president of Bianco Research.
Without that tag line, investors assume an
article offers just analyst commentary spun
with the reporter's own sense of Fed
reality. That can be useful but not like a
bona fide leak.
However, S&P's Rupert argues that the
"sheer volume of 'Fed sources' stories and
the number of times the market moved on
them and guys got burned" means reporters
just don't have the power they once did.
Several people point to Steve Beckner of
the wire service Market News as someone
who once coined hot Fed news but has now
lost some of his currency because his
stories seem too often merely sensational
rather than truly valuable.
Next -- Opening Up the Temple
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