Fed Chairman Ben Bernanke is totally off message.
His admission to Senator Jim Bunning of a “lapse of judgment” in the Bartiromo kerfuffle is pure process—not content. His “data-driven” approach to policy is backward looking driving through the rear view mirror.
Bernanke should go back to his confirmation hearing statement, when he stated that price stability is the cornerstone of economic growth. This should be his main message. He should resurrect his numerical inflation target. And he should publicly say that enhanced dollar value is vital to price stability.
Also, he should reemphasize forward-looking market price indicators, which includes a widening breakeven inflation spread in the TIPs bond market, abnormally high gold and commodities and a dollar exchange rate that is too low. A few more quarter-point rate hikes will contain inflation and actually strengthen the economy, along with the stock market.
The rising volatility in U.S. and worldwide stock markets is because Bernanke is off message. The U.S. Fed calls the tune for world money. Right now, the tune is off key.
Until Mr. Bernanke gets back on message, with clarity, expect more market volatility.
Again, the message should be: price stability, price stability, price stability.