Is it kinda sad that the only one with their eye on the ball is the WSJ? --RB
Bernanke's Market Week
June 21, 2008;
The Federal Reserve's Open Market Committee meets again next week, and one of its jobs will be to clean up the mess the Fed made this week.
Earlier this month, Chairman Ben Bernanke signaled a turn in Fed policy to include a focus on maintaining a "stable" dollar. Sure enough, the dollar strengthened, the price of oil fell and stocks crept up. Then earlier this week, someone in the upper reaches of the Fed began leaking to the press in advance of next week's FOMC meeting that Mr. Bernanke saw no reason to raise interest rates this month, or indeed until the autumn.
Sure enough, oil shot up and gold rose back above $900 an ounce, with equities tanking in turn on stagflation fears. Throw in renewed worries over credit problems in the banking system, and the markets had a very ugly week.
What we can't figure out is what in the world Fed officials are thinking, assuming that's even the right word. The most precious commodity a Fed Chairman has is credibility. When he makes a widely advertised public commitment to maintain dollar stability, and then he or his minions leak that he has no plans to back that up with any action, he is squandering his own currency. Central banking isn't an academic seminar where ideas don't have consequences.
With inflation climbing around the globe, most of it inspired by dollar weakness, the Fed has a growing credibility problem. Mr. Bernanke needs to understand that investors are beginning to suspect that the most important financial official in the world doesn't seem to appreciate the Fed's primary role in undermining the greenback. If that conclusion becomes fixed, this week's market meltdown will look pretty by comparison.