NEW YORK ¨C Federal Reserve Chairman Ben S. Bernanke seemed a little nervous at his June 19 news conference. His recent comments about the future course of monetary policy had rattled investors and driven bond yields up, tightening financial conditions in a way the Fed didn¡¯t want. Formally unperturbed, Bernanke said he was leaving policy unchanged ¡ª but in trying, yet again, to elucidate the Fed¡¯s thinking, he tacitly admitted that something had gone wrong.
Fortunately, the policy itself, I think, is basically good ¡ª but that¡¯s despite, not because of, the ever-evolving formulas used to explain it.
Growth in the United States is still sluggish, unemployment is still high and inflation is (a) running well below the Fed¡¯s target and (b) falling. That suffices to justify interest rates at zero until further notice, together with additional large-scale asset purchases ¡ª which is what the Fed intends.
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