Bernanke's History Lesson

Bernanke's History Lesson: "Federal Reserve Chairman Ben S. Bernanke went to Capitol Hill on Feb. 27 as if he were a general called from the battlefield to report on the progress of a losing war. The problem, as he explained to the House Financial Services Committee in his semi-annual monetary policy report, is the economy is fighting enemies on two fronts: a financial crisis and an economic slowdown on one side; inflation on the other. The more the Federal Reserve does to fight the financial crisis and potential recession, the worse inflation threatens to be. And vice versa.

It's an unenviable dilemma for Bernanke, who took office two years ago, succeeding Alan Greenspan. The Fed is operating, said Bernanke, 'in an environment of downside risks to growth, stressed financial conditions, and inflation pressures.'

Bernanke indicated that for now, at least, quelling the financial crisis and lifting the economy remains a higher priority for the Fed than chilling inflation. He said, 'Financial markets continue to be under considerable stress.' And although the Fed is still forecasting modest economic growth of 1.3% to 2% in 2008, 'The risks to this outlook remain to the downside.' Those risks include the possibility of worse-than-expected deterioration in the housing and job markets and the possibility that credit conditions, already"