Quote of the Day: April 27, 2012
Liveblogging World War II: April 27, 1942: Civilian Cars and OPA

Tim Duy on the Difference Between Bernanke-1999 and Bernanke-2012: Federal Reserve Blogging: "Why One Would Use a Balance Sheet Recession to Shift Downward The Path of Prices Is Certainly Something of a Mystery"

FRED Graph  St Louis Fed

If Bernanke told Obama and Geithner how he viewed the world before they renominated him, we have a major malpractice case here:

Tim Duy:

Bernanke's Shift: Note - and I think this is important - when Bernanke's Fed took the opportunity to shift down the path of inflation by sanctifying the 2 percent target, they were comfortable with the subsequent shift in the distribution of outcomes.  And consider that shift.  At a time when households were overwhelmed with excessive debt, the Fed deliberately chose to increase the real burden of the debt by changing the inflation trajectory.

Why one would use a balance sheet recession to shift downward the path of prices is certainly something of a mystery.  But it does imply that the Fed wanted to induce a new distibution of outcomes, even knowing that the beneficiaries would not be households.

Bottom Line:  Bernanke is being disingenous in his defence.  Despite his claims that his earlier views only applied to deflation, his writings still appear at odds with his willingness to embrace a new price and aggregate demand paths.  Moreover, the Fed's own forecasts clearly do not support his contention that the target is symmetric, but indeed a hard ceiling.  The Fed must also know that the by reducing the path of inflation they have knowing altered the distribution of outcomes in a way that is likely to slow the pace of recovery. Finally, with inflation near 2 percent, I suspect the bar toward another round of QE is higher than many believe.