It’s fair to say that Bernanke’s first press conference pleased neither conservatives or liberals.
The Fed watchers who should be most disappointed after Bernanke’s press conference are those who had hopes the Fed would use all its available tools to lessen the recession despite the risk of inflation.
This position of course won’t accommodate Bernanke’s conservative critics who claim that the inflation situation is more significant because of commodity prices and who wanted to see an immediate tightening or even a pre-emptive ending of QE2.
When asked why he would not do further easing even though he believes QE2 was effective, Bernanke returned to the inflation concerns of the dual mandate.
When he was asked whether the Fed would act if Congress implements fiscal tightening, he not only endorsed long-term austerity measures (a step necessary to improve the U.S. in the eyes of credit rating agencies such as S&P) he also said that he didn’t have any reason to believe that any austerity measures implemented by Congress would be significant enough to warrant a Fed response.
But when pressed on inflation, the falling value of the dollar, or the rise in gas prices, Bernanke offered little to ease the concerns of many libertarians and conservatives who would like to see the Fed aggressively change its posture and use commodity prices to set the money supply.
So while the press conference was an effective way to learn about Fed policy, it confirmed that it’s a policy that neither conservatives nor liberals can truly be happy with.
The question now for those who hoped the Fed could be bold in helping lessen the pain of the recession is a chicken-and-egg one: is the Fed being limited in its response to the unemployment situation because of political pressure, or would the Fed still wind down quantitative easing even without this criticism?
This word cloud from Reuters should also convince everyone that Bernanke really does believe inflation is a concern for the Fed:
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