There has been a lot of talk recently about Ben Bernanke, he of the Wall Street Journal op-ed and the multiple Congressional appearances. (Hey, can anyone put me in touch with his agent?*) At the risk of seeming ignorant (or revealing myself to be ignorant), I must say I don’t really understand what the fuss is about.
The question seems to be whether the Fed will be able to tighten monetary policy fast enough when necessary to dampen the potential inflationary effect of its current expansive monetary policy (Fed funds rate at zero, buying long-term securities, etc.). My read on the situation is as follows:
- Almost everyone agrees that expansive monetary policy has been appropriate during the crisis and recession to date.
- Everyone agrees that at some point monetary policy will have to be tightened.
- No one knows when that will happen.
- Everyone agrees that because policy has been so expansionary recently, tightening monetary policy when necessary will be more difficult than usual.
- Everyone agrees more or less on what tools will be available to the Fed.
- No one is certain the Fed will or will not be successful, because there are no relevant datapoints to compare it to.
- No matter what Bernanke actually thought, he would still have to say exactly what he is saying this week.
I don’t see much in there worth arguing about.
As Catherine Rampell says, a more interesting question is when the Fed will start tightening policy. This is the kind of thing that can set the Fed against the administration, as stereotypically one focuses on inflation and the other on unemployment. But since most people think it is too early to start now, that debate would be purely speculative at the moment.
* He does need a grammar checker, though. His first sentence – “The depth and breadth of the global recession has required a highly accommodative monetary policy” – contains an error in subject-verb agreement.
By James Kwak