What is Ben Bernanke Thinking?
Matthew Yglesias is puzzled:
Matthew Yglesias: Bernanke Used to Know What to Do: Even though Ben Bernanke is a conservative Republican Bush appointee, and even though the Fed mishandled a lot of things before the Bear Stears meltdown and Lehman Brothers bankruptcy, a lot of people I know were reasonably glad he was Fed chair as the country headed into major economic crisis. Why? Well largely because his pre-government academic work really seemed to indicate that he appreciated the need for drastic anti-crisis measures.... [Y]et here in the contemporary United States when Bernanke has the chance to put these ideas in practice, he’s not doing it. But we’ve been having below-target inflation for a while now. And we’ve got 10 percent unemployment. And our forecasts tell us that elevate unemployment will continue for a loooong time. The appropriate solution, as Bernanke laid out here, is for the central bank to continue monetary expansion until the price level “catches up” with where we’d be on a reasonable growth trend. That means a limited period of time in which inflation exceeds the standard target by a limited amount. But instead of doing this, the Fed remains obsessed with trying to eliminate all risk of inflation rising above the long-run target for even a moment. But why?
I am puzzled too.
