CNNMoney calls it a “high wire act.” BusinessWeek says Bernanke “faces stiff headwinds.” And Allan Meltzer in today’s Wall Street Journal asks if the Fed has “reverted to its mistaken behavior in the 1970s?”
The immediate source of the sobering commentary is yesterday’s chit chat between the House financial services committee and Fed Chairman Bernanke, who emphasized that the central bank is focused on the softening economy, by which he means that inflation fighting is of secondary import, at least for now. Suffice to say, that’s a provocative idea with inflation on the rise. In any case, it’s clear that more interest rates cuts are coming, a prospect that helped the dollar sink to new lows against the euro and raise questions anew about the future of inflation in these United States.
“The continued focus on the weak growth outlook supports our view that the Fed will cut rates by 50 basis points – when it meets on March 18 – and will continue to cut rates beyond that in order to limit the downside growth risks,” Drew Matus, economist at Lehman Brothers, told the Financial Times today.
Hardly anyone disagrees, although not everyone’s celebrating. “Bernanke has really overweighted the economic risks relative to inflation,” John Silvia, chief economist at Wachovia Corp. explained in a Bloomberg News story. In fact, “he may get some disagreement” among colleagues on the Federal Open Market Committee, Silvia speculated.