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Yesterday, the Bernanke-led Fed voted to hike interest rates by another quarter of a point, raising a key short-term rate to 4.75 percent. The move pushed the Dow Jones industrial average down nearly 100 points Tuesday, though the market recovered more than half of those losses early Wednesday.
The Fed cited two reasons for lifting rates for the 15th consecutive time. First, it said, the economy continues to expand at a rate that appears sustainable. Therefore, the economy can withstand more rate hikes.
Second, while the central bankers conceded that "as yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation," they noted that "possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures."
Wall Street interpreted this as an unnecessarily hawkish stance on the part of Bernanke, who many believe will raise rates at least two more times in an effort to combat inflation.
In a commentary published yesterday, David Rosenberg, North American economist for Merrill Lynch, described the Fed's explanation as "a bit of a disappointment." He said he wished the Fed had sounded "a tad more dovish" than it did.
Rosenberg said he would have "felt better if the qualifier 'as yet' was left out of that sentence since to some degree it conveys a lack of conviction at the Fed" that core inflation will remain tame—as many on Wall Street believe.
The fact is, Bernanke is continuing a policy started two years ago by former Fed Chairman Alan Greenspan. But Greenspan was the Great Obfuscator. His ability to use language that few truly understood worked to his advantage.
If Bernanke can be criticized for anything, it's for speaking plain English.
