In his latest post Bernanke continues to “play safe” but begins to brag:
In response to the Great Recession, the Federal Reserve has kept the short-term interest rate (the federal funds rate) near zero since December 2008 and taken other steps (like purchasing longer-term Treasury securities) to strengthen the recovery and avoid deflation of wages and prices. Although the recovery has not been as fast as hoped—in part because of “headwinds” arising from fiscal policy, the after-effects of the financial crisis, and other factors—today the jobs situation in the United States is much better than a few years ago, and the risk of deflation is very low. Fed policies have had a lot to do with that.
1 He knows very well, because he has said so, that interest rates are a lousy indicator of the stance of monetary policy.
2 The recovery has not been “as fast as hoped” exactly because monetary policy has remained tighter than warranted (not because of fiscal and financial crisis headwinds)
3 “Fed policies have a lot to do with that”. Only the “that” should refer to the depth of the recession and the weakness of the recovery!
I wonder when he´s going to start blogging about important things, like when and why, despite 15 years of quiescent inflation, in 2007 they started to obsess about it. In particular why that of the headline variety?
The June 2008 FOMC Meeting, which takes place right at the “edge of the precipice”, is telling. In it, the standing of inflation comes through clearly:
My bottom line is that I think the tail risks on the growth and financial side have moderated. I do think, however, that they remain significant. We cannot ignore them. I’m also becoming concerned about the inflation side, and I think our rhetoric, our statement, and our body language at this point need to reflect that concern. We need to begin to prepare ourselves to respond through policy to the inflation risk; but we need to pick our moment, and we cannot be halfhearted. When the time comes, we need to make that decision and move that way because a halfhearted approach is going to give us the worst of both worlds. It’s going to give us financial stress without any benefits on inflation. So we have a very difficult problem here, and we are going to have to work together cooperatively to achieve what we want to achieve.
The last thing I’d like to say is on communications. Just talking about communications following this meeting, I’d like to advise everyone, including myself, to lean, not to lurch. That is, we are moving toward more concern about inflation, but we still have concerns about economic growth and financial markets. We should show that shift in emphasis as we talk to the public, but we should not give the impression that inflation is the entire story or that we have somehow decided that growth and financial problems are behind us, because they are not. So if we can convey that in a sufficiently subtle way, I think we will prepare the markets for the ultimate movements that we’re going to have to make.