Greenspan, circa 2003: When in doubt, be vague

By Emily Kaiser

WASHINGTON (Reuters) - In June 2003, when the U.S. Federal Reserve was wrestling with how to boost the economy and ward off the threat of deflation, the advice from Chairman Alan Greenspan was to be vague about possible policy steps.

According to transcripts released on Wednesday, then-Fed Governor Ben Bernanke's response was that financial markets needed more information from the central bank, not less.

The transcripts shed some light on Bernanke's approach to today's financial crisis, and highlight a key difference in the current and former Fed chairmen's thinking on communicating when investors were hanging on their every word. (here)

The U.S. central bank releases minutes from its policy meetings, held eight times a year, three weeks after each gathering, but transcripts follow more than five years later.

The transcript from the June 2003 meeting shows Kansas City Federal Reserve Bank President Thomas Hoenig was concerned that questions would arise over how the Fed planned to proceed if already low interest rates fell to 0.75 percent or below.

"My suggestion is that, if you get asked those questions, just say we're examining nontraditional methods and there are many different ways in which we can address the issue," Greenspan replied. "I would be as nonspecific as you know how to be."

While Greenspan said it was important to explain that the Fed would still have room to maneuver even when rates were approaching zero, "as for what that means beyond that, I would be very vague.

"The major reason is that I don't think we will know until we start to address the issue," Greenspan said.