In the video above you’ll see a “word cloud” – a visual depiction of Federal Reserve Chairman Ben Bernanke’s historic press conference last week. The cloud shows all the words he used often. The size of the words reflects how much he used them. It’s a picture that tells a story.Ben Bernanke has one word on his mind: Inflation.Bernanke uttered this word 31 times in his main statement, and then many more times during the Q&A that followed.There’s a reason that we should all be looking at Bernanke’s words carefully. He is trying to navigate between two somewhat contradictory missions – to keep inflation low and to keep employment high.
Now for a quick reminder: the Fed Chairman is like the driver of the national economic automobile. If the Fed keeps interest rates low, that’s like stepping on the accelerator of the economy because people can get cheap loans, which is good for employment.But if the car goes too fast and there’s too much borrowing and spending then that will tend to drive up prices and wages causing inflation, which no one wants.By raising interest rates Bernanke would be putting on the brakes. Higher rates mean fewer people take out loans. That slows down economic activity, resulting in less danger of inflation but also in less employment for Americans.
Throughout the financial crisis and until recently, unemployment has been Bernanke’s central concern. He understood that the global economy was in a big slowdown and that the West was in a massive recession.He put his foot on the accelerator. But he now seems to have gotten worried about inflation. This might mean that the foot is coming off the accelerator and onto the brakes.It’s a tough call, but I think this move would be premature. TheU.S.economy is having its slowest recovery from a recession in five decades. The only reason unemployment numbers are even falling right now is that many people have stopped looking for work (the way unemployment is calculated, you have to be looking for work and not finding it to be counted as unemployed).