Peeling back the curtains on the secretive central bank’s mysterious ways, Ben Bernanke on Wednesday will become the first Fed chairman to hold a public press conference with reporters.

The experiment is likely to capture the attention of Wall Street, giving traders new color and insight into the deliberations behind the Federal Open Market Committee’s latest policy decision. 

Few expect Bernanke to deviate from the company line on the economy and policy, but that doesn’t mean the historic press conference will go off without a hitch. With just a slip of the tongue, Bernanke could create turbulence in the financial markets and a public relations nightmare. 

“You can always make a mistake. There’s downside risk. One might say there is only downside risk,” said Vincent Reinhart, a former Fed official and a scholar at the conservative American Enterprise Institute. “Nobody’s going to say, ‘That was a great press conference.’”

The market impact of Wednesday’s press conference will largely be determined by how many headlines Bernanke wants to make and the format of the event itself.

Sweating the Details

With a room packed full of journalists from a slew of media organizations, Bernanke is expected to reach the podium at about 2:15 p.m. ET, following the 12:30 p.m. ET release of the Fed decision. Bernanke plans to give an opening statement for 10-15 minutes and then take questions from reporters.

The event is expected to last 45 minutes to an hour, similar to the length of European Central Bank press conferences.  

The number of questions Bernanke will take depends on how long his responses are and -- critically -- how much leeway he allows for follow-ups that could create headlines. According to a Goldman Sachs note, ECB press conferences between 2001 and 2006 featured 16 questions, though its last event included 23 questions.

Unlike a pair of Q&A sessions at the National Press Club, Wednesday's questions will not be prescreened, meaning the Fed chief can’t select only softballs.

“There’s a greater chance of more information coming from this than from a prepared statement,” said Michael James, managing director of equity trading at Wedbush Securities. “How much depends on how much free rein the people who ask the questions get.”

One question Reinhart said Bernanke is likely to see: Are you happy with the market reaction to the FOMC statement, Mr. Chairman? With the built-in 105-minute gap, Bernanke will have ample time to gauge Wall Street’s knee-jerk reaction to the initial Fed decision.

“Don’t you think he’ll lean one way or another based on what happens in the equity markets and to the dollar?” said Reinhart.

For example, if the dollar is getting crushed by the statement’s perceived easy-money tone, Bernanke could take a more hawkish stance during the ensuing press conference.

That doesn't necessarily mean Bernanke will tip his hand.  

"The increased transparency lies in the process. Investors are unlikely to learn from Bernanke when the Fed will tighten [interest rates] as it is doubtful that he himself knows," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, wrote in a note.

The Gaffe Factor

If Bernanke wanted a role model to follow, he could turn to Jean Claude Trichet, who as president of the ECB is an expert at gaffe-free press conferences. His predecessor, Wim Duisenberg, tended to preside over “more of a rollercoaster” event, Reinhart said.

Simply by opening his mouth, Bernanke runs the risk of saying or conveying something he didn’t mean to. He could accidentally let plans slip or misrepresent the consensus of the FOMC. Reporters may press him on real-time events he hasn’t been briefed on.

Even Bernanke’s appearance will be scrutinized, with traders and reporters looking for clues on plans for interest rates and inflation via his facial expressions.

“'Body language’ may matter as much for the perceived success of the press conferences as the technical precision of his answers,” Andrew Tilton, a senior economist at Goldman Sachs, wrote in a note.

The problem is that a gaffe doesn’t merely create a PR headache -- it could trigger a scary slide in stock prices and financial pain for investors. Unlike many politicians, Bernanke can’t simply answer questions without regard for the consequences.

Yet Bernanke, better than almost anyone, already knows that. He has been holding semiannual televised Q&A sessions with Congress for the past five years. While some lawmakers ask him questions he easily bats down, others, like Rep. Ron Paul, throw knockdown pitches designed to fluster Bernanke. He has largely handled those events without any market-crashing mistakes.

“Bernanke is extremely quick on his feet, and he practices,” said Reinhart.

PR Progression

Regardless of how Bernanke performs, Wednesday’s media event marks a watershed moment in the Fed’s evolving view on transparency.

Answering questions from reporters may not be a big deal for some government bodies, but the Fed didn’t even release policy statements until 1994. Prior to that, the media had to use clues in the marketplace to guess whether or not the FOMC raised or lowered rates.

Former Fed chief Paul Volcker was intentionally very opaque in his monetary policy, and Alan Greenspan was famous for giving testimony that still left many guessing. 

While Bernanke has fought attempts to open the Fed’s books, the central bank has made strides at transparency during his tenure. Bernanke has twice appeared on CBS’s (CBS) “60 Minutes” and even held a town hall forum.

“It has been an evolution,” said Reinhart. “On net, they had to do this -- probably.”

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