These are tricky times for monetary policy in the world’s major economies. Just how tricky was illustrated this week in the US, when the Federal Reserve chairman, Ben Bernanke, outlined the circumstances under which the American central bank might begin to roll back its bond-buying programme.
The Fed is currently hoovering up $85bn (£56bn) worth of mortgage and government bonds every month in a bid to boost activity. As economic data in the world’s largest economy improve, markets have been attempting to work out when the central bank might begin to reduce the value of its monthly purchases.
Mr Bernanke, who spoke after the Fed published new forecasts pointing to a more optimistic outlook for the US economy, said the reversal could begin later this year and the programme could end by the middle of next year.
Although he was careful to include some crucial caveats – he insisted that no decision had been taken and that policy could take a different course if the economic picture sours – stock markets around the world headed south as investors panicked about the end of easy money.
The reaction underscored the risks that lie before the Fed as it works out what to do next. There will no doubt be more turbulence in the months ahead. Until the rollback begins, every economic report will be analysed to death as investors attempt to gauge when the Fed might begin to turn off the taps. And once the rollback is in motion, the focus will shift to just how fast the programme might end.
Policymakers at the Fed will no doubt do their best to provide certainty. But they can only be so firm in their pronouncements, given the still uncertain nature of the recovery.
And it’s here that the White House can, and should, help.
Go back to the beginning of last week, before Mr Bernanke spoke out, and to the interview that President Obama gave to Charlie Rose, the American television host. In the course of a conversation that many watched for the President’s response to evidence of widespread government surveillance and his thoughts on Syria, Mr Rose briefly touched on the chairmanship of the Fed. “Some people would like to see you announce that you are reappointing Ben Bernanke as chairman of the Fed,” said Mr Rose. To which the President replied: “Well, I think Ben Bernanke’s done an outstanding job. Ben Bernanke’s a little bit like Bob Mueller, the head of the FBI, where he’s already stayed a lot longer than he wanted or he was supposed to.”
Now, it has long been believed in Washington and on Wall Street that Mr Bernanke is indeed likely to step down when his second term comes to an end early next year. But the President’s comments were unusual for their bluntness.
“This is really remarkable. I almost fell off my chair when I heard the President’s remarks last night,” Laurence Meyer, a former governor of the Federal Reserve, told CNBC.
“He essentially fired Ben Bernanke on the spot. It’s time to really now focus on who the next chairman might be.”
Although Mr Meyer later added that “there’s always a bit of hyperbole when I talk”, he said he was “just befuddled” by the President’s remarks. “The President said he [Mr Bernanke] stayed longer than he wanted to and was supposed to... What does that mean?”
On Wednesday, when Mr Bernanke was asked by a reporter about the Charlie Rose interview at the Fed press conference, he declined to comment, stressing that he wanted to talk about policy, not his personal plans.
Was the President simply speaking off the cuff? That’s wholly possible. But that would be out of character for a man who is known for his caution, both in the way he acts, and the words he chooses – particularly on national television.
It’s more likely he wanted to send as clear a message as possible to investors and others with a stake in monetary policy that the baton was going to pass to someone new when Mr Bernanke’s term ends next year.
Given his comments, and given the uncertain road ahead for policy, the President should name his nominee sooner rather than later. The candidate will have to go before the Senate for confirmation hearings, which will be closely watched by the markets. With everyone already nervous about when and how the stimulus will be rolled back, you can just imagine the potential for wild swings as politicians press the nominee on when the bond-buying programme should end or when might it be best to raise interest rates (“Tell us… how long will you continue punishing America’s savers?).
And so, the sooner the White House gets done with the business of nominating a new Fed chair, the better. Surveys suggest that the most likely candidate is Janet Yellen, Mr Bernanke’s able vice-chairman. Mr Obama should publicly announce her name at the earliest possible opportunity.
An upturn in fortunes for Microsoft with new Xbox?
Oh, Microsoft. This column has previously touched on the mess the company seems to be making of the once-unrivalled Windows business after missing the boat on the arrival of tablets, and wondered why more questions weren’t being asked about Steve Ballmer’s position. But it evidently doesn’t stop there.
This week, the company said it would remove restrictions in the forthcoming Xbox One console that would have limited the sharing of games among users and required a regular internet connection. The original plan was to use digital rights technology to limit how and when users can share their games with others. But that clearly jarred with the gaming community, where buying and selling games is common among users.
Companies do make mistakes, and it’s better to own up than try to cover your tracks. In Microsoft’s case, however, the Xbox reversal comes not long after it updated its new Windows 8 software in response to criticism in some quarters about the removal of the “start” menu.
“We’ve learnt from customers on how they are using the product and have received a lot of feedback,” a Microsoft executive said in a blog post announcing the Windows 8 changes at the end of May.
These reversals are troubling because they come as Microsoft struggles once again to capture the imagination of non-business users. When was the last time that you were genuinely excited about a Microsoft product? In this context, headlines about U-turns aren’t helpful. Let’s hope it stops with the Xbox.