Bernankeology

Why so much is read into the words of the Fed chairman.

Following Fed chairman Ben Bernanke's speech yesterday, the usual bout of trying to understand quite how much we can read in to his words has begun. Yet unlike the normally perjorative "Kremlinology" – attempting to infer things from the most minuscule turns of phrase – this Bernankeology is understandable and quite useful.

Central bankers have a strange job. They don't actually have many tools at their disposal; largely just the tripartite decision to raise, lower, or maintain interest rates. Yet many of the outcomes they create come, not from actually using this power, but from creating expectations as to their future use.

Suppose Bernanke knows he is likely to raise interest rates in the first quarter of 2013. Even though his actual power is relatively limited, he can create a wide spectrum of outcomes depending on how he announces this. The market reaction will be extremely different if Bernanke says now that he will raise rates in a years time, compared to if he maintains right up until the day that a rate rise would be inappropriate.

But this power to persuade brings with it its own problems. Just like a legislature, a central bank is fundamentally unable to constrain itself; it can make promises, but everyone knows that it is free to break them at any point.

All of this means that every speech Bernanke gives is likely to be very carefully aimed at creating just the right set of expectations. On the one hand, he can't ever gain a reputation for untrustworthiness, so they have to be scrupulously honest; on the other, actually saying what he believes may create the wrong impression.

Last week, Ryan Avent provided a detailed breakdown of exactly what the benefits of Bernankeology can be, focusing on the Fed's "forward guidance" where it hinted that it would keep interest rates low until at least 2013. He writes:

On the one hand, a pure focus on the language of the Fed's statement indicates that rates are likely to remain low through that period based on the state of the economy... On the other hand, the Fed may be hinting that it will be willing to keep rates low through late 2014 even if the trajectory of the economy warrants a rate increase.

In other words, the Fed might be attempting to commit itself to a deviation from its normal policy rules of the sort that might generate more rapid growth and inflation.

The problem the Fed has is that it needs to generate growth, but that growth is likely to come with relatively high inflation, of the sort which Bernanke has historically fought against. In order to help the economy, he needs to convince "the markets" that interest rates will be kept low even if inflation spirals out of control. The problem is that this, from an inflationary hawk like Bernanke, is unbelievable.

Avent points to a paper (pdf) which breaks down the distinction into two categories:

Delphic, corresponding to the first category above, and Odyssean, corresponding to the second, in which the central bank attempts to commit itself to deviations from typical rules.

Matt Yglesias offers a less refined version of the same strategy, breaking Bernanke's possible responses into an Eeyore response and a Tigger one. Either the Fed chief can "avoid optimistic forecasts as a way of signaling that rates will stay low for a long time," or he "can say we're climbing out of a steep hole so rates will stay low for the next 18 months come what may".

The test for Bernankeologists is to work out whether yesterday's gloomy speech is Odyssean-Eeyore, using gloominess as a mast to bind himself to, or simply Delphic, with the chairman making his most honest predictions and still being pessimistic.

Occupy LA activists march against the Fed in November. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Overlooking the effect of Brexit on Northern Ireland is dangerous for the whole UK

We voted to remain in the European Union. The tensions caused by the referendum outcome, and ignoring its effect on us, will cause utter carnage in Northern Ireland.

I’ve been from Northern Ireland all my life. Having spent many years living in Dublin, and now London, I’m quite used to that very fact making people uncomfortable. I get it. From a glance at the news, it would seem we fight each other about flags and anthems and are inexcusably proud of throwing glass at people in bowler hats, or daubing on our own homes the worst paintings ever committed to brickwork. Our tiny little protectorate has generated such disproportionate levels of confusing violence, most people are terrified of saying the wrong thing about any of it. We’re the celiac vegans of nationalities; the worry is that almost anything you offer will offend.

Most people avoid such worries by – whisper it – simply never acknowledging that we exist. This reflexive forgetfulness is, of course, a happy state of affairs compared to what went before. I refer, of course, to the period named, with that Ulster-tinged strain of sardonic understatement, the Troubles, when some 3,600 people were killed and ten times that injured. By some estimates, as many as 115,000 people lost a close relative to violence in this time, and many more a good friend, a colleague or an old school pal. Taken as a portion of 1.5m people, this means a startlingly high percentage of Northern Irish citizens have been directly affected by the conflict, certainly a higher percentage than that of, say, the English electorate who have ever voted for Ukip.

Northern Ireland also contains Britain’s only fully open border with the EU. I know because I grew up on it, specifically between Derry and Donegal, where my dad's back fence demarked an invisible boundary, a small hop from the UK to the Republic, and back. From a migration point of view, this poses a problem, so when Brexit was being deliberated, it did seem odd that Northern Ireland was barely mentioned at all, that the one border that exists in the entire country was given such scant reference during the campaign’s interminable duration. A dreaded EU migrant, travelling freely through Ireland toward my father’s house will not be subject to border checks once he has passed it quietly behind him. No machine guns, no "papers please", none of the fortified rigour mandated by the Leave campaign. Implementing such fortifications would, of course, be a practical nightmare, since so many live in Ireland but work in the UK, and vice versa. But the psychological effect of such a move would be infinitely worse.


Much of the Good Friday Agreement was predicated on free movement between north and south, and cross-border bodies that reinforced a soft-union of the two states; just enough to ameliorate nationalists, but nothing so resembling a united Ireland as to antagonise unionists. Making Irish-identifying Northern Irish citizens undergo any form of border checkpoint between the two countries would not just be a bureaucratic hassle, it would massively inhibit the self-determination nearly half of Northern Ireland's population takes from both countries’ status within a wider European state.

The peace that exists rests largely on this status quo, the acceptance of people who reject violent means and see little injustice in being allowed to live their lives within a British state that dignifies their close connection to their southern neighbours. It is hard to overstate how different this situation would be were armed checkpoints to re-emerge. I remember checkpoints as a child. I remember machine guns and dogs and my dad making sure we weren't nervous while he was being interrogated by armed men inspecting his driving license and checking under our car for explosives. This was every day. Rather than some novel development, this will be a direct, unbidden return to something we worked very, very hard to get away from, something we were promised was over, and something for which thousands of very stubborn, dangerous people struck what many considered a highly improbable truce.

It is this effort to which thousands of Northern Irish people now owe their lives, to which tens, perhaps hundreds, of thousands more can count among the living and healthy their siblings, their friends, their colleagues. This may not be at the forefront of minds in Carlisle or Cornwall or aboard the statesmanlike grandeur of a battlebus, but it is the lived reality of Northern Irish people. To stoke up these tensions risks sleepwalking out of a peace that was hard-fought and long considered unthinkable. To do so as a side effect of what appears to be, on its face, little more than a tussle for the leadership of a single political party with little-to-no presence in Northern Ireland seems distasteful in the extreme.

Having stating these facts to friends here in London, I’ve been touched by their sorrow for our plight but, for all their sympathy, it might still not have registered that our problems have a tradition of travelling to people in London and Dublin, in Birmingham and in Monaghan. If greater care is not given to the thoughts, aspirations and fears of Northern Irish people, and those still-present agents of chaos who would seek to use such discontent to their own violent ends, we risk losing a lot more than free use of bagpipes or pleasingly bendy bananas.

Westminster must listen to those who would bear the burden of Fortress Britain’s turrets near their homes or else, to borrow a phrase, Brexit will be a threat to our national security, our economic security and your family's security.

Séamas O'Reilly is a writer and musician. He tweets @shockproofbeats. His website is shocko.info.