Ben Steps Up

A few quick points regarding the muscular comments from Bernanke:

Friday’s NFP Employment data added NOTHING WHATSOEVER to the Fed’s understanding of the economy. Indeed, I would go so far as to suggest no single NFP adds much to anyone’s understanding. It is but one point in a long data series, and any one data point — too strong or too weak — needs to be put into context. (You can see my context in Friday’s debate with Cody).

Second and perhaps more importantly, any group dealing with uncertainty must consider what happens if they are wrong. The options facing the Fed are overtightening and causing a recession, or under tightening and letting inflation getting away from them. IMO, the latter is the far worse option, and the new noise from the Fed is consistent with that (See
here for more details

3rd, the bond vigilantes are returning, and that is reflected in the Fed Funds Futures. The hope of a pause should be dashed for quite sometime now (Not the pause itself — just the hope of it).

Last, Bernanke may have been too concerned with consensus building outside of the FOMC; I think the entire Maria episode made him rethink that, and reminded him he is no lionger in academia. In this vein, he seems to be no different from other newbie Fed Chairs, who took some time to get their sea legs.


UPDATE: June 5, 2006  6:35pm

Tony Crescenzi calls Bernanke’s speech "Tough Love"


Remarks by Chairman Ben S. Bernanke
At the International Monetary Conference, Washington, D.C.
June 5, 2006

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