For some time, we have said that the Federal Reserve is walking a very thin line – caught between the need to support economic growth and the threat that such support will feed inflation. Last week, Fed Chairman Ben Bernanke managed to inject a dose of confusion into the markets by raising interest rates another smidgeon, but failing to tell the world exactly which side of the line he’s leaning towards. Regarding future rate hikes, Ben says it will depend on the data. In other words, he has no clear understanding of where our economy is heading. Greenspan, it would seem, took the crystal ball with him when he cleaned out his office.
Well, if the Federal Reserve Chairman, with what we assume to be the best access to the pulse of the economy, can’t make heads or tails of it … then no one else can either. Markets, as you know, hate confusion and so stocks reacted by falling 2.6% for the week. (Or at least, the S&P did.)
Poor Ben. We can’t help but think that history is not on his side. Were we in his shoes, we might be checking our job description for the word “scapegoat.”
