“Bewitched, bothered and bewildered,” warbled Ella Fitzgerald, among others. That old song, written in 1940 by Lorenz Hart and Richard Rogers, just about describes what is going on in the American economy. When seven of the seventeen officials of the Federal Reserve Board dissent from the chairman’s decision to keep the Fed’s $2.05 trillion pile of mortgages and U.S. Treasuries from shrinking, uncertainty takes on a new meaning. Ten want to set the stage for printing more money, seven think enough is enough.
Fed chairman Ben Bernanke used the platform of the gathering of central bankers in Jackson Hole yesterday to attempt to reassure markets by promising additional monetary stimulus if it is needed. But he also confessed that “fiscal stimulus … can drive recovery only temporarily” — in the end, it is up to consumers and businesses to create demand for goods and services. Worse, he confessed that the Fed had misread the mortgage market and allowed developments “inconsistent” with the Fed’s intention to keep policy loose. Makes one wonder if the Fed really has a grip on things.
