I forgot to link to my comments on Bernanke's testimony the other day. They were a bit rushed anyway (supposed to be on vacation, and was traveling to a new place, so I wrote this stopped along the side of the road):
However, as I noted, if economic conditions continue as they are -- employment basically stalled, inflation below target -- the Fed is very likely to act at its next meeting, if not before.
[But if a few encouraging signals arrive amidst the gloom, they may latch onto those observations as a reason to stay the current policy course. I can't hope against good news, but I can hope that Fed officials will see the bigger picture and ease more despite a few contrary indicators that give them an excuse to avoid tough decisions and forestall further action.
Are they worried, as Paul Krugman has wondered, about being seen as helping Obama? I've always taught that the Fed is reluctant to make big moves near elections, monetary policymakers don't want to be seen as helping one side or the other, but not doing anything more will be viewed as giving in to Republicans in the House and elsewhere who have all but threatened the Fed's independence if it tries to do more to help the economy. So no matter what they do, or don't do, it will be seen as taking sides, so monetary policymakers may as well do what's best for the economy (a truly independent Fed would stand above such threats). In my view, that means more easing even if a few contrary data points between now and the next meeting point in another direction.]