Tim Duy is puzzled by Ben Bernanke's reasons for keeping the Fed on hold:
Driving Me Crazy, by Tim Duy: No time for a long post this afternoon, just a short comment.
Today's speech by Federal Reserve Chairman Ben Bernanke contains one of those little inconsistencies that drives me nuts. In his assessment of economy:
The prospect of high unemployment for a long period of time remains a central concern of policy. Not only does high unemployment, particularly long-term unemployment, impose heavy costs on the unemployed and their families and on society, but it also poses risks to the sustainability of the recovery itself through its effects on households' incomes and confidence.
I was already beginning to view this as a throw away line, something that Bernanke feels he has to say but doesn't really intend to worry much about. That sense was reinforced later in his speech:
Second, regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery. Consistent with our mandate, the Federal Reserve is committed to promoting growth in employment and reducing resource slack more generally. Because a further significant weakening in the economic outlook would likely be associated with further disinflation, in the current environment there is little or no potential conflict between the goals of supporting growth and employment and of maintaining price stability.
If in the current environment - note that traditionally "current" means "right now" - there is already disinflation and little or no conflict between the dual mandates, then why, why, WHY do we need to wait until conditions deteriorate and risk additional disinflation before monetary policymakers turn to the problem of high unemployment that Bernanke claims distresses him?
If there is no conflict, then there is room to maneuver. Not later, now. So either Bernanke actually believes there is a conflict, or his concern about unemployment is disingenuous. I still don't know which.