What was supposed to set Ben Bernanke’s Federal Reserve chairmanship apart from that of Alan Greenspan is transparency as well as plain talk. And that’s why the Fed’s decision to cut the Federal Funds rate target by 50 basis points on Sept. 18 didn’t jive with the message the Fed was sending to the fixed-income market.
“We were all knocked off balance by this,” says Kenneth Volpert, one of Vanguard Group’s bond gurus. I had a chance to catch up with Volpert (pictured below) over lunch today. As the person at the helm of more than $80 billion in bond index fund assets, he is someone who cares about the Fed’s every move. Volpert is the portfolio manager of Vanguard’s Total Bond Market Index Fund, which has more than $50 billion in assets, as well as Vanguard Inflation-Protected Securities Fund, among others.
Volpert muses that catching the market off guard must have been part of Bernanke’s master plan because “the shock is what can move people.” And the people have moved: the fixed-income markets are open for business once again.
As a result, Volpert grades Bernanke’s performance so far as an A-. “There’s still plenty of credibility with the Fed,” Volpert says. “Part of the good grade is knowing when to speak, and when not to speak.”
What grade would you give to Bernanke?