The Zen of Greenspan

It's hard to open a paper today without reading Fed-this and Fed-that. While the Federal Reserve might not be quite as publicly familiar as city hall, it is nonetheless on the lips of many, thanks largely to America's obsession with the stock market and the love-hate relationship the market is purported to have with Fed-related monetary policy.

In spite of the ubiquitous mention of the Fed in newspapers and on the Internet, TV and radio, the number of news organizations and reporters with a dedicated "Fed-beat" remains surprisingly small, according to some of the leading reporters on the Fed. So small, in fact, that the vast majority of breaking news and analysis comes from an inner circle of reporters who have access right up to Fed Chairman Alan Greenspan. This elite core of reporters, in turn, feeds a greatly expanding list of secondary sources and media outlets interested in bringing anything-Fed to the general public.

Among those who have a keen interest in keeping an eye on the Fed-known as Fed watchers—the Washington Post and the Wall Street Journal stand out for their coverage of the central bank. A survey compiled by The International Economy last year showed that most Fed watchers would pick either the Post or WSJ if they had only one source for information on the Federal Reserve.

Much of that following is based on the Fed reportings of John Berry of the Post and David Wessel of the WSJ—two reporters with arguably better name recognition than most of the Fed officials and policymakers they report on, save for Greenspan. Wessel has since been appointed head of WSJ's Berlin bureau, with Jacob Schlesinger taking over Wessel's Fed-watching duties. But in an interview before receiving his new Berlin post, Wessel and other reporters waxed philosophic about media coverage of the Fed.

"Given its import to the American economy and consumers and businesses, [the Fed] is surprisingly lightly covered by the press," Wessel said. "There aren't very many [reporters] who seem to pay that much attention to what the Fed does."

Berry agreed. "Once you get beyond just a few newspapers and a few magazines, there are not major staffs working on the macroeconomic policy issues."

Several sources familiar with Fed coverage produced a short list of media outlets in addition to the Post and WSJ: the New York Times, Boston Globe and LA Times, Associated Press, financial wires like Bloomberg, Reuters and Dow Jones, Business Week and Fortune, virtually no electronic media outside of CNBC and CNNfn, and only a few foreign publications like Financial Times and The Economist. Even some of these outlets run hot and cold when it comes to covering the Fed beyond Federal Open Market Committee (FOMC) meetings, where monetary policy is discussed.

Wall Street also has its Fed watchers, some of whom carry influence because they either speak to policymakers at the Fed or are somehow familiar with their views. But sometimes "you later find out that they [Fed watchers on Wall Street] are peddling you something that they in fact got from someone like Wessel or Berry," according to Rob Norton of Fortune magazine.

Wessel said there is plenty of room for more reporters on the Fed beat. "Someone could just march right in and do some good stories on the Fed."

So why don't they? Despite a widespread perception of the Fed as a fortress of secrets—where access is the problem—the reluctance to cover the Fed has more to do with the need to become a student of the Fed and monetary policy.

"It's hard to write about the Fed," Norton said. "Monetary policy is boring."

Backstage passes to the Fed

While it may surprise some, access to the Fed—to good information and sources on monetary policy—is not all that hard to come by.

According to a former Fed official, news organizations themselves control whether they get access by virtue of deciding whether "to cover the Fed full time with intensity," rather than including the Fed as one of a reporter's many beats.

"I think the way people get access is by sort of proving themselves in print," Norton said. "They have to demonstrate through the work they do for their publications that they're paying attention, that they're familiar with the debate, that they understand the terms, that they know something about the history" of the Federal Reserve.

Norton added that access is predicated on the understanding that a Fed policymaker "wouldn't have to worry about being misunderstood or misquoted, and that they would feel that somehow they were improving the quality of the general debate" by talking to a reporter. Norton said Berry and Wessel "are excellent examples."

Berry said that familiarity breeds comfort, trust and, by extension, access. Reporter familiarity allows Fed officials to "know what it is they can tell you-not in terms of secrets, but do they have to watch every word, or do they need to be concerned that you're going to take something out of context—even if it's an accurate quote—which might make a great headline," he said.

Understanding such nuances ultimately gives this small circle of reporters access to Chairman Greenspan, whose conversations with the press are always off the record. Interviews with the chairman are typically done more for issue clarification than newsmaking, according to one Fed insider. One-on-one sessions are important to reporters, he said, because such background gives reporters a better sense of what Greenspan's feelings are.

Berry said the reputation of the news organization often precedes the reporter, and can influence a reporter's access. He said it would be "much, much harder" for someone from a regional newspaper to get an interview with a member of the Board of Governors than for either he or Wessel.

"We don't even try," said Jim Gallagher of the St. Louis Post-Dispatch. Instead, Gallagher said the Post-Dispatch looks to the Eighth District Federal Reserve Bank in town to give readers some insight on the regional economy.

The Fed beat = rocket science?

Ultimately, the shortage of reporters on the full-time Fed beat appears to stem from a mystique about monetary policy that is intimidating to reporters and media outlets alike—too complex, too arcane, too fill-in-the-blank for the average reader, they argue.

Much of it is overblown, Wessel believed. "Some of what the Fed does is technical, but it really isn't all that abstract. The stuff that matters is pretty easy to explain to people. Everybody understands now what happens when interest rates go up, and they care about it."

He compared perceptions of the Fed to that of the Supreme Court years ago. "There are people that said the Supreme Court was impenetrable—that all you could do is read their decisions and try and discern what they meant," Wessel said. But a few reporters, including the Post's Bob Woodward, "have pierced that veil. So I think there isn't any institution in Washington that is impenetrable."

To the uninitiated reporter, "impenetrable" might be an apt description of an Alan Greenspan speech. "When you're listening to Alan Greenspan testify for the first time it seems almost like listening to someone read in a foreign language. But if you do it for a few years and you sort of learn to get with the Zen of listening to Greenspan, it really isn't all that hard," Wessel said. "Some of it is practice."

The typical Greenspan speech contains a lot of previously used facts and ideas. But he often uses speeches and congressional testimony to introduce newsworthy items. "So that when he says something that you haven't seen before—when he uses the phrase 'irrational exuberance' in the same sentence as stock market, you take note," Wessel said. "You almost get the sense he wants you to look for it, so part of the Zen of listening to Greenspan is trying to figure out that one thing that he wants you to know."

While on the beat, Wessel himself was immersed in the Fed. He said he read as much on the Fed as he could-working papers, testimony or speeches given by Greenspan, members of the Board of Governors and district presidents. He also attended Fed conferences and was a regular visitor to Fed Web sites.

"I get a lot of faxes from Wall Street Fed watchers and I always look them over to see what they think," Wessel said. "I'm always interested in what other people are saying about the Fed because it sort of gives you a check on what you think, even if you think they're full of it."

That's not to say that studying the Fed and monetary policy leads everyone to the same conclusions. Wessel and Berry, despite their dual studiousness, have at times come to very different conclusions while beating the same Fed path. But understanding the Fed goes well beyond the FOMC, in contrast to—or maybe because of—the market's fixation with it.

"The most important thing is understanding what it is that all the policymakers are thinking, and the process by which they reach their decisions," Berry said. He added that while there is often little dissention at FOMC meetings, "I doubt any two [board members] get there by the same analytical process."

That means going beyond Greenspan and the Board of Governors. Norton considers the research directors of the 12 district Reserve banks to be excellent sources of general economic intelligence "because they're sort of the regional filter of a lot of economic intelligence." "You know that [research directors] are guys who sit in the room" during FOMC meetings, Norton said. "They're the only ones who can really tell you in retrospect or in general whether the president of the Tallahassee bank is a hothead and liable to vote with a minority or whatever. [They] are a way you can sort of get a feel for what's actually going on."

Berry's not afraid to mingle below the top brass, either. "They all count, and I think why I've been successful in writing about the Fed is that it isn't a matter of just going out as if I were a tape recorder and having somebody tell me something and then come back and putting that in the story. It's having a lot of people tell me a lot of different things and understanding what it all adds up to," Berry said.

"Occasionally there's a certain amount of detective work in this, in the sense that you talk to somebody, and you talk to somebody else, and you talk to a third person, and none of them may have told you something that you can hang your hat on," Berry said. "But when you've talked to all three of them, you see, 'OK, this comment here has a meaning that wasn't obvious.'"

Use of anonymous Fed sources is common [we're doing it ourselves], but sometimes reporters get too far down the Fed pecking order to someone who "doesn't really know what's going on overall in policy," said a former, high-level Fed official. "A lot of the reporters don't realize that everybody in the organization doesn't know what's going on generally, and if they get down too far they're going to get misled."

This was most common with the newswires, he added. "They would quote these unnamed sources on monetary policy. Just drive us batty."

Just the facts, ma'am

Interest in the Fed has been a boon to some news gathering organizations. Not every media outlet can afford to have a Fed reporter. Newswires like the Associated Press (AP), with more than 1,500 newspaper members, have helped fill that gap as the public's interest in the Fed—or maybe more accurately, in things that can affect the stock market-has increased.

"The AP is one of the places that [newspapers] look to if they are not putting as many resources into [covering the Fed]," said Martin Crutsinger, chief economics writer for the AP.

Cut from the same cloth, a new financial newswire industry has been created to meet the market's demand for up-to-the-minute information on the Fed and other important financial matters.

Bloomberg News, for example, has exploded onto the news-gathering scene in just the last decade. Originally started as a business-news subscription service, Bloomberg now makes news publicly available online, sells breaking news stories to 850 newspapers worldwide, and has introduced radio and television broadcast services. In just the last two and a half years, Bloomberg's subscription service has grown 65 percent to almost 124,000 terminals in over 100 countries.

Bloomberg's "U.S. economy team" handles macroeconomic and Fed coverage in tandem. In the last three years, the team has more than doubled in size to four editors and eight reporters, "and it's likely to grow further in the coming year," according to John Cranford, co-team leader. "We throw lots of bodies on stories about the economy."

Gallagher said the St. Louis Post-Dispatch relies heavily on wire services which often "aren't very good." AP's coverage can be stale, he said, and Bloomberg doesn't write for a lay audience. The Post-Dispatch tries to "keep it simple ... and more lively," Gallagher said, showing readers how Fed action affects the average person.

"If we don't, nobody's going to read this stuff," he said.

Some reporters bemoan the "wire effect" on Fed coverage, believing the wires pass over deep analysis and forgo context, if necessary, in favor of spot news and predictions of future Fed actions that might affect the stock market.

"I repeatedly feel that the world gets its news and the market reacts to news out of context because of this developing and quite extensive financial wire industry," Berry said. "By the very nature of their [wire] transmission process, the first thing you see is a headline, and again by definition, there can't be any context. And often, the next things you see are sort of brief comments, snippets—again, no context."

"Financial newswires have a very positive incentive to do things in a way that will move a market, or be seen to move a market, because they have a limited number of customers who pay a lot of money for the service," Berry said. "I think, as a result of that, the newswires have a very strong incentive to always push a story, to hype a story."

In covering a speech or testimony, for example, the wires "will emphasize what the market thinks it wants to hear," Berry said, adding that the public's understanding of Fed issues has suffered as a result.

That quick-trigger news finger is characteristic of most wire services, particularly when Greenspan was testifying at the Capitol, said one former Fed official. After answering a question, "all of a sudden five wire service reporters will jump out of their seats and run for the door," he said, and the story would be about what just was said or just happened, without much interpretation. "It's just the idea of getting the information into the market first, because then that's a promotional thing for them. Then they can say, 'Well, we were first with the important news of the day.'"

Cranford disagreed, noting that Bloomberg makes a concerted effort "not to manufacture news." He pointed out that financial news wires dedicate significantly more reporters to covering the Fed than other media outlets. With a dozen people fluent in "Fed-speak" in its economics team, Bloomberg has the unique ability to regularly tie Fed policy into its coverage of economic issues, Cranford said.

For the past three years, Bloomberg has assigned three people to every public speech given by members of the Board of Governors as well as the presidents of the 12 district Reserve banks. This "full court press," as Cranford called it, has one reporter cover the speech in person, with another reporter and editor listening to a live audio feed in the office. Bloomberg reporter Rob Wells said such regular coverage gives the reader or subscriber "much more depth than you would get in any of the dailies."

Bloomberg has also developed a product called "voices" for its news subscribers, Cranford said. Rather than report on every speech, "voices" excerpts relevant statements from speeches given by various Fed officials and sends them to subscribers—a group that is well-informed about the economy and has the background knowledge necessary to interpret the meaning of such excerpts, Cranford said.

Berry also acknowledged the difficulties that wire writers face. "To be fair to the wire services, I almost always have a lot more time than they do to think about what's said, to digest it. I don't have to pick up the cell phone and dictate a headline or a six-paragraph story or something," Berry said.

Norton agreed, "The wire service guys have my sympathy. That's a very tough gig."

One Fed source noted that no media were without sin in the spin department. "They all try to get a different angle."

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Reading the Tea Leaves

In 1998, The International Economy, a bimonthly policy magazine, asked 27 top financial traders and Fed watchers the following question (publications are ranked by the number of times each was chosen):

If you had only one source for information regarding potential changes in Federal Reserve policy, what would it be? Put another way, which mass publication over the last year has provided the best analysis of coming changes in monetary policy?

The Washington Post	12
The Wall Street Journal	10
Business Week	2
Bridge News	1
Financial Times	1
Reuters	1
None of the Publications	1
Bloomberg	0
The New York Times	0

Wanted: More nattering nabobs?

The very nature of "good" Fed coverage is also a topic of debate. Some have argued that in order to protect high-level access, reporters have to treat the Fed with kid gloves, which ultimately results in favorable analysis and tepid criticism.

Berry said the Fed does not whimsically cut off access after critical stories. "My experience is that Fed officials are not that thin-skinned. They know that they're in a public policy arena in which there are lots of opinions," Berry said. "They want you to be fair."

Still, Berry acknowledged that he's been accused "of pulling my punches," but disagreed with the charge. "I don't go for the quick hit and the sharp headline. ... Sometimes I think about myself as wanting to behave as a monopolist in dealing with the Fed. I want to maximize my long-term profit, not my short-term gain, and so I'm going to want to come back and see these people again, because I'm going to be in my job and they're going to be in theirs."

Even if it were true, Berry would have a lot of company. "Right now, there are very few people around who have anything critical to say [about] things that are at the heart of what the Fed does," Berry said. "It's very hard, when all of your critics, or virtually all of your critics, have been silenced by your performance."

There have been critics of the Fed's recent interest rate hikes and its support for some international measures, among other things. "So it's not all gravy," Berry said. "But boy, in terms of where the domestic economy is," Greenspan and the Fed have few ardent detractors.

When Greenspan gives testimony at the Capitol, Berry said, "Democrats and Republicans, conservatives and liberals [are] just falling all over themselves to say, 'What a really great guy you are' and 'What a marvelous job you and your colleagues have done.'"

It is the throttling of inflation that has given the Fed high visibility and popularity today, at a time when trust in government is lower than our belief in alien life. "I've always thought that the fact that inflation had gotten so bad and created so much concern and so much uncertainty was why it was politically possible for the Fed to effect a cure," Berry said.

Crutsinger of the AP pointed out that Paul Volcker came in as Fed chairman in 1979 "with the expressed intent of dealing with inflation," subsequently pushing interest rates and unemployment rates to their highest levels since the Civil War and the Great Depression, respectively. At the same time, federal fiscal policy failed to provide any economic stability as Congress rang up record budget deficits.

Combined, these two factors made the Fed "the only policy game in town, in a sense," Berry said. "Then the Fed—with some luck undoubtedly, but also with good policy—just had enormously positive results" in bringing inflation under control.

Those positive results have produced largely favorable treatment by the press, leaving Greenspan little room for an encore that could outdo the original act, according to Berry. "Greenspan's on the cover of Barron's. He's on the cover of Time. Everybody reveres him as this immensely wise and immensely powerful figure. I think he's actually a little uncomfortable with that because he knows it's not all his doing."

Mike Meyers, a business reporter at the Minneapolis StarTribune, said the media's "herd mentality" bears much of the blame for Greenspan's larger-than-life stature, calling it "kind of naive" to think that Greenspan has total control over monetary policy.

"They [the media] make it a cult of personality," Meyers said. "The idea that every utterance of Greenspan is a page one story is preposterous."

An open door behind the Fed curtain

One other important factor in the media blitzkrieg has been a conscious effort by the Fed to be more open and transparent—a move that other central banks worldwide are following as more countries move to market-based economies.

"The Fed has become much, much, much more open," Berry said. Greenspan has publicly stressed the need to have a central bank that is independent from short-term political pressures, but still accountable in a democratic society. Accountability requires openness, "and that means explaining to the public what you're doing, and why ... and never deliberately misleading people," Berry said. The Fed's move to greater transparency shows "that's not just idle chatter."

For a long time, the Fed found it convenient "to let people regard them as sort of mysterious," according to Berry. Some Fed policies exacerbated this tendency by restricting access to time-sensitive information. Crutsinger said that when he started covering the Fed in 1984 as the Treasury reporter, "announcements were not even made when they changed the federal funds rate. You had to watch the big banks and brokerage houses."

The move to more openness, according to Norton, was useful because "you don't need people reading the tea leaves if people [at the Fed] actually tell you what's up." If the Fed announced an asymmetric directive, he said, there inevitably would be a lot of guessing. "Wessel and Berry might have gotten it right, but somebody at the Daily Planet might have misunderstood something that a junior economist told him and concluded wrongly" about where Fed policy was headed.

Wessel said it was in the Fed's best interest to be more proactive with the media. "The problem with never talking to the press is you let other people fill the vacuum, and sometimes they don't necessarily fill it with high quality information." While things have been improving—he cited the immediate announcement of changes in the fed funds target—"there is a long way to go" regarding openness, he said.

"I think Greenspan and the other people here can take a lot of credit for making [the Fed] more open," Berry said. "But I don't feel that the Fed has done anything that's going to make my job obsolete."

David Levy, Minneapolis Fed director of Public Affairs, conducted the interviews with Berry, Wessel and Norton.