The Dow Jones Index dropped sharply at 1 p.m. on July 31, was back up again by 1:30 p.m., and even rose. This was the market’s reaction to the moment when media analysts released good news from the Fed's meeting. The media has increasingly served as the Fed’s fourth tool for managing the nation’s economy because of our constant information loop, and as we move forward, it might even be it's most powerful tool in the Fed’s belt.
Stabilizing public opinion is as essential as stabilizing interest rates, and the next Fed leader will have to assume the responsibilities of using the media as much as interest rates to control the economy.
Using the media to build consensus and confidence in the Fed's policies will be one of the biggest challenges for the next Fed leader, even though this has never been one of the prescribed duties of the role. By regulating popular opinion and market behavior through media, the Fed can stave off unnecessary panic or economically harmful misinformation campaigns that have damaged our economy in the past. This will involve a media strategy that can help the Fed achieve its central mandates while protecting its independent identity in the face of increased public scrutiny. Regardless of political affiliation or sex, the next Fed Chair will have to be a hardy leader that understands the politics of Washington, D.C., and the dynamics of modern media marketing.
The media’s influence over the economy in the hands of the Fed creates a sensitive but critical atmosphere of transparency that will only continue to strengthen the economy. Chairman Bernanke has been a politically shrewd player in representing the Fed's economic policy in the media and to Congress. The Fed would normally have only broadcasted the chair’s bi-annual reports to Congress on C-SPAN, but under Bernanke’s tenure, for the first time, the reports are immediately available on the Fed’s website. His media appearances on shows like "60 Minutes," secret meetings with Congress leaders to educate them on economic policy, and even hiring a lobbyist to maintain some presence in the political back channels have shielded him and the Fed from harsh criticism by volunteering transparency into the economic decision-making.
The Fed’s isolation from public transparency has been blamed for causing the Great Depression and the economic contraction in the 1960s. Legendary economists Milton Friedman and Anna Jacobson Schwartz placed the central blame on the implosion of the economy during the 1929 banking panic as the result of the Fed’s inability to calm the public during a crisis, which instead made people hold on to their cash, seizing sales, contracting production, and crippling the economy. Had the Fed allowed for more inclusive auditing from the media, public panic may have been cited by others at the time as a clear indicator of faulty policy, and the Great Depression could have simply been the Great Recession.
The Fed can continue to stay relevant and effective by honing its media image as a staunch building block of the economy, and not as the enemy of the middle class. “The Fed had to do extraordinary things to keep us from going into a great depression [in 2008], and the public doesn’t see it this way,” summarizes Lyle Gramley, a former Fed governor who is now senior adviser to Bloomberg at the Potomac Research Group in Washington. This is clearly seen in a poll by Bloomberg where a majority of Americans believe the Fed should be reined in or abolished, and 39% believe it should be held more accountable. Bernanke’s media strategy allowed him to succeed in making the Fed more “collegial,” but the next Fed leader must go beyond that. It would not be completely surprising to see the Fed’s own version of the White House White Board video series as a way to talk directly to the public and not just to the too-big-to-fail bankers
Critics describing the Fed’s media campaign as a wasted and dangerous effort would point to the first Fed Chairman to crack under political and public pressure, Arthur Burns. Burns did buckle under political pressure from the Nixon White House, but he could have directed the Fed to launch its own media strategy to defend its goals. Burns governed under President Nixon from 1970 to 1978, and the latter pressed on the Fed to ensure “money and credit stayed easy through the 1972 elections.” Burns was the subject of targeted attacks by President Nixon after he resisted the White House’s efforts to guarantee full-time employment. The attack ads and pressure to deflate the authority of the Fed worked. Burns aligned himself with Nixon’s administration against his better judgment. Inflation doubled during his tenure and Nixon left office disgraced. This was more a case of a weaker persona than a harbinger of the influence of media on the Fed. The next Fed leader will be able to assuage critics by using the media machine to keep partisan agendas out of economics as much as possible, similar to Bernanke’s independent ideologies compared to President Obama's.
The next Fed leader must negotiate between conversations of monetary policy and public perception since the latter is equally important as a barometer of economic health. While one can argue that the Fed should leave perception to politics and focus on economic goals, the reality is that perception has as much to do with economic stability as actual stabilizing forces of monetary policy and interest rates do. To avoid experiencing another Great Depression, the Fed must swallow the increased scrutiny by the public in exchange for assimilating a media strategy to keep up with the modern economies.