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 Bernanke, who retired from the U.S. central bank in January, has
predicted the Fed will only very slowly move to raise rates, and
probably do so later than many forecast because the labor market
still has a lot more room to recover from the financial crisis and
recession.
The accounts of the discussions come from attendees as well as those
who heard second-hand what was said at the dinners, where hedge fund
managers and others willing to foot the roughly $250,000 bill for
each event asked the former Fed chairman questions in a free-flowing
round-table fashion over recent weeks.
Bernanke has no constraints on expressing his views in public or
private, providing he does not talk about confidential Fed matters.
He declined to comment on any of his remarks at the private events.
The demand for Bernanke's time shows that many of Wall Street's
highest-profile brokers and investors see him as holding rare
insight on how the Fed will react in the months and years ahead -
and are prepared to pay big bucks to get private access to those
views.
At least one guest left a New York restaurant with the impression
Bernanke, 60, does not expect the federal funds rate, the Fed's main
benchmark interest rate, to rise back to its long-term average of
around 4 percent in Bernanke's lifetime, one source who had spoken
to the guest said.
Under his direction, the Fed took the fed funds rate, its key policy
lever, to near zero in late 2008 as the financial crisis raged. The
central bank has held it there ever since in a bid to stimulate a
stronger rebound in the world's largest economy.
Another dinner guest was moved when Bernanke said the Fed aims to
hit its 2 percent inflation target at all times, and that it is not
necessarily a ceiling.
"Shocking when he said this," the guest scribbled in his notes. "Is
that really true?" he scribbled at another point, according to the
notes reviewed by Reuters.
The sources requested anonymity because the dinners were private and
they were not authorized to discuss the material publicly.
The Washington Speakers Bureau, which organizes the events and
advertises the former chairman's availability on its website, did
not return calls.
AFTER THE FED
Since leaving the Fed at the end of January after serving eight
years as chairman, Bernanke has taken a position as a distinguished
fellow at the Brookings Institution, a think tank in Washington.
He kept a low profile for the first month after his departure,
delivering his first public remarks to a banking conference in Abu
Dhabi on March 4 and earning a $250,000 speaker's fee. His annual
paycheck from the Fed was $199,700 last year - an amount that he
would have already exceeded many times over from the fees he has
earned in the past couple of months.
By contrast, his predecessor at the Fed, Alan Greenspan, waited only
a week after his departure before addressing a private dinner hosted
by Lehman Brothers, the investment bank whose collapse in 2008 sent
the financial crisis into high gear.
That also brought in a reported $250,000, while a private telechat
with investors in Japan that same day in 2006 was worth about half
of that, each drawing criticism for giving high-paying investors a
leg up on others who didn't have access to Greenspan.
Bernanke's private dinners began near the end of March, roughly two
months after his retirement.
"It's not atypical for what other former Washington big shots do,"
said Jan Baran, a partner and head of the election law and
government ethics group at law firm Wiley Rein LLP.
"He's being paid ... for sharing his wisdom and predictions, and
presumably not to exert his influence on the Fed," he added. This
will go on "until he's proven to not be all that clairvoyant."
TIES WITH YELLEN
The baseline fee for a private get together is $250,000, and more if
Bernanke needs to travel from his home in Washington, though the
price has dropped some as he has done more events, the sources said.
The size of that decline could not be immediately learned.
He is known to be close with his successor, Janet Yellen, adding to
perceptions that he should know what the thinking is at the Fed
months after his departure. It is a particularly sensitive time as
Yellen works to reverse the biggest monetary stimulus experiment
ever - and investors who understand how the Fed is going to proceed
have an advantage over those who don't.
Hedge fund attendees have included Paul Tudor Jones of Tudor
Investment Corp and David Einhorn of Greenlight Capital. Others have
included Michael Novogratz of Fortress Investment Group, and Larry
Robbins of Glenview Capital, as previously reported in other media.
All declined to comment to Reuters.
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David Tepper, the hedge fund manager who earned $3.5 billion in 2013
to rank as the industry's best paid investor, said at an industry
conference this week that he attended the first private dinner and
peppered Bernanke with questions. But Tepper said he didn't make the
best use of the information, a lapse he now regrets. "I screwed up
that trade," he said.
At the same conference, Novogratz from Fortress said many hedge
funds that bet on big interest rate and currency movements missed a
hint from Bernanke at the dinner and failed to buy long duration
Treasuries.
Bernanke's last major act as Fed chairman was to announce, in
December, plans for the winding down of the central bank's huge
stimulus, a bond-buying program called "quantitative easing," which
should end by this fall.
That was greeted by a sell-off in the bond market, where
expectations for future interest rate levels are particularly
important, because many investors believed the Fed would move on to
raising interest rates in fairly short order. The yield on the
benchmark 10-year Treasury note ended the year just above 3 percent,
the highest since the summer of 2011.
To the surprise of many, however, bonds have rallied back hard this
year, driving the 10-year yield down by half a percentage point. The
shift comes as more and more investors come to embrace a view
Bernanke has been sharing with his dinner guests: There is just too
much slack remaining in the economy to support a rise in interest
rates.
Still, not every guest believes they came away from a Bernanke
dinner with an exclusive insight.
"People can try all they want to feel that they got him to say
something extra to them, but he never does," said one person who
attended one of the dinners.
"WE" THE FED
Financial institutions, including JPMorgan Chase & Co <JPM.N> and
institutional brokerage BTIG, have hosted at least four Bernanke
dinners for their clients since March, the sources said. Venues
included Manhattan's Eleven Madison Park and Le Bernardin, where the
four-course prix fixe menu is $135 a plate. More are expected, the
sources said.
JPMorgan and BTIG declined to comment.
The investors have asked Bernanke about everything from how the Fed
will shrink its $4.3 trillion balance sheet to why exactly it didn't
start to cut bond purchases last September, when expectations were
high.
By most accounts, Bernanke has been candid and sometimes feisty,
defending his eight-year record of steering the U.S. economy through
the deepest recession in decades. Often using the pronoun "we" to
describe the Fed, he has been careful not to contradict Yellen's
public comments, in which she too has stressed that the labor market
is far from fully healed.
In its first policy statement under Yellen, in March, the central
bank said the federal funds rate may need to stay below average even
after it reaches its goals for employment and inflation.
In one dinner-table exchange with investors, Bernanke argued that
fiscal tightening, constrained financial markets and lower U.S.
productivity all point to lower real rates than would be considered
normal for a long time to come.
Based on trading in the massive Eurodollar futures market, investors
have in recent months tempered expectations of rate rises in the
years ahead; as it stands, they don't expect the fed funds rate to
return to 4 percent until 2022. As recently as last September,
futures markets signaled they thought this would happen by the end
of 2018.
At the dinners, Bernanke has also argued the Fed would want to delay
raising rates if the tighter financial conditions created could
threaten to harm the economy. He has also stressed that financial
stability concerns would more formally be considered in
policy-making, according to the sources.
For hedge fund managers who have big bets riding on when exactly the
Fed will raise rates, dining with Bernanke is part ego and part
professional necessity.
The average U.S. hedge fund has returned only 0.9 percent in the
first four months of the year after two consecutive months of losses
in March and April, leaving many top managers on edge.
(Additional reporting by Jennifer Ablan in New York; Editing by Dan
Burns and Martin Howell)
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