Who Are You and What Have You Done with Our Ben Bernanke?
Edmund Andrews asks a question of the Fed Chair:
My theory on Ben Bernanke: [O]ne has to ask: what took Bernanke so long to reach this decision. At the end of the day, his rationale boils down to something that critics -- even laymen like me -- have been saying and writing for months: unemployment is higher than the Fed wants and inflation is lower than the Fed wants, so there is no good reason for not easing policy further.
One explanation is politics. Fed governors and regional Fed presidents have been split between hawks and doves, and the Fed likes to maintain as much consensus as possible. But I think there's a more basic reason: Bernanke has been worried that another round of easing might not accomplish much. And he has good reason to worry. Spectacularly low interest rates have done little to spark demand, as evidenced by the massive volume of excessive reserves that banks are parking at the Fed. I think Fed officials are worried that they will be seen as powerless, that they have run out of tricks and that the central bank's authority and mystique will suffer a long-term blow.
If that's the case, it's a bad reason. Bernanke was brilliantly bold in his initial responses to the financial crisis and the downturn. But he lost his nerve more recently, and held back when he should have forged ahead.
