The Federal Reserve Bank’s reputation for secrecy and mystery is so prevalent that writers often compare it to the Wizard of Oz. Fed chairman Ben Bernanke will for the first time give a press conference after the release of the policy statement that comes out of the quarterly Federal Open Market Committee (FOMC) meeting, briefly pulling back the curtain on its monetary policy. This is supposed to signal a new policy of transparency and clarity from the Fed.

Ben Bernanke, Chairman of the Federal Reserve Bank (via Creative Commons)

One of the advantages of having an independent central bank is that it has leave to respond to economic crises in unpopular ways. Now that another stimulus is politically out of the question, the Federal Reserve is basically the only body that can provide any kind of economic boost, even though it has already used almost all of its weaponry. It has already lowered the federal funds rate to nearly zero and used two rounds of “quantitative easing,” or printing money to buy treasury bonds.

As such, there has been pressure on the Federal Reserve to be more open. “The notion of being upfront about their actions is probably a step in the right direction,” said Ross Starr, professor of economics at UC San Diego.

On the flip side, said UCLA economist Jerry Nickelsburg, press conferences could put Bernanke in a tough political situation. “On the one hand it allows Ben Bernanke to put monetary policy into the public arena for discussion and debate,” he said.  “On the other hand, it can serve as a platform from which Chairman Bernanke can counter the influence of the other governors. This could make the discussions at the FOMC less incisive.”

It could also open up Bernanke to even more than the usual level of Fed-bashing, as displayed in this video (via Frum Forum):

The Wall Street Journal predicts that Bernanke, especially in his opening statement, will make his comments short and to-the-point in order to keep from distracting from the FOMC’s key message.

The main topic of discussion will likely be inflation.

The Federal Reserve has so far maintained that long-term inflation is stable and the rise in commodity prices are “transitory.” Furthermore, the Federal Reserve typically does not take into account such things as food prices and energy prices when calculating “core inflation,” Starr said. “With oil in particular, political disruption and international demand will have more of an effect than U.S. economic policy."

But, as the International Business Times points out, this idea is in dispute, especially because the immediate effect has been that rising gas prices have made consumers feel less confident. The IBT also questions the terming of commodity inflation as “transitory,” because, after all, “Oil prices have been rising for two years now. So have the price of other commodities like copper and steel.”

As James Surowiecki writes in the New Yorker, consumers may not necessarily be much poorer in the long run because of high gas prices. Gasoline actually turns out to be a low percentage of most families’ budgets. But families, and especially low-income families, feel poorer. “Last month, consumer confidence plunged, and pundits are still talking about the possibility of a double-dip recession,” he wrote in the middle of April.

Charles Kadlec of Forbes also has doubts about the fleetingness of inflation:

First, the rate of consumer price inflation including energy and food has accelerated into the mid single digits. The three-month annualized increase in the Consumer Price Index (CPI) has gone from 2.9% in September, to 3.3% in December, to 6.1% in March.

The acceleration in more sensitive producer prices has been even more startling, with the three month annualized rate of advance in the Producer Price Index for Finished Goods rising from 4.1% in September, to 9.2% in December and a stunning 13.1% for the three months ending March.

Taking this view can be risky during an economic recovery, Starr said. For example, the European Central Bank does take food and oil prices into account when measuring inflation, and their policy has been to tighten interest rates to control rising prices. This could slow down the European Union's economic recovery, Starr said.

Transparency has been the focus of much of the discussion, but clarity, some argue, is something of which the Fed needs much more. Rick Matus, a UBS senior economist, told CSNBC that the Fed press conference would offer a clearer vision of how the Federal Reserve is thinking about the economy. “People talk about transparency and clarity as if they’re the same thing,” Matus said. “What we have now is plenty of transparency. We have no clarity. If Bernanke can provide us with more insight into where the Fed is actually headed, that’ll be a positive.”

However, clarity has never been the Fed’s strong suit, historically speaking. This issue of communication is an important component of the Fed’s responsibility because, as David Wessel illustrated in the book “In Fed We Trust,” a seemingly minor miscommunication can cause serious ruptures in the stock market and the economy.

Former chairman Alan Greenspan was legendary for his opaqueness when it came to monetary policy. It was part of his strategy and it contributed to the way politicians and the press revered him and to the aura of mystery surrounding the Fed. “Greenspan made it very clear that he was trying to be unclear,” Starr said.

USC economist Aris Protopapadakis said Bernanke might not be as clear as lay-people might hope. “I suppose [Bernanke] will stick religiously to central-banker-speak, because if he doesn’t, lots of folks will find something to skewer him on,” he said in an email.

In other words, if you plan to watch the Fed meet the press on Wednesday, you might want to have a translator.

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