Seemingly in response to the external doubts over Fed policy, Bernanke felt the need to write an editorial in the Washington Post to further clarify his thought process just one day after their FOMC meeting. He is encapsulating in one sentence the mantra of the Greenspan/Bernanke Fed, “Easier financial conditions will promote economic growth.” The unfortunate evidence however over the last 10 yr’s says otherwise and that all it promotes are booms and busts. Since his Aug 27th speech, the Fed has been successful in lifting asset prices as we’ve all seen but he’s also succeeded in lifting inflation about the exact same amount. Since Aug 26th, the S&P 500 is up 14.4% but the CRB index is up 15.5%. An example, the person next door just got a 5% pay raise, great news but his cost of living just went up by 5% too. Thus he/she is no better off. This is the fallacy of the wealth effect goal of the Fed if inflation is an equal byproduct.
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