Bernanke '100% Certain' He Can Control Inflation

Should that worry us?

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Last night on CBS's "60 Minutes," Federal Reserve Chairman Ben Bernanke covered a lot of ground: he described persistently high unemployment as the main source of risk for another economic slowdown, conceded that the economic recovery "may not be" self-sustaining, predicted that it may be four to five years before the U.S. returns to a normal unemployment rate of five to six percent, and recommended reforming the tax code.

But it's Bernanke's comments about inflation fears being, well, inflated, that are proving particularly contentious. In his interview with Scott Pelley, Bernanke defended the Fed's decision to buy up $600 billion in Treasury securities against critics who claim the action could be inflationary, and said the Fed might purchase more in order to keep interest rates low, ward off deflation, and fuel economic growth. "We've been very, very clear that we will not allow inflation to rise above 2 percent," he explained, adding that the Fed isn't printing more money with its purchase of Treasury bonds, as some detractors suggest, and that it can raise interest rates instantaneously if inflation becomes a concern. When Pelley asked Bernanke what degree of confidence he had in his ability to control inflation, the Fed chairman responded, "one hundred percent."

Should Bernanke be trimming some percentage points off his estimate? He has some commentators worried.

  • What Bernanke Said About Inflation Was Scary, asserts Business Insider's Joe Weisenthal: "100%? Really? This represents a frightening belief in his own power and the effectiveness of monetary policy. One of the big knocks on Bernanke is that he's an academic who's convinced he can manage the economy via model, and frankly this kind of comment only confirms it."
  • And His Comments Reveal an Arrogance Problem, submits The Daily Beast's Zachary Karabell:
Wasn't it the over-weaning confidence ... of economists, bankers and their models that helped create our current travails? Wasn't it that sense that outcomes could be calculated, predicted, and gamed that led to much of the risk-taking in housing and derivatives that has proved so misguided? And yet here is Bernanke asserting with nary a blink or a hesitation that he is sure beyond doubt, beyond question, beyond margin of error that the current course of action will either work or can be controlled.
  • History Shows Bernanke Is Right About Inflation, counters Fortune's Colin Barr. "As long as one American in six is jobless or underemployed, there's no reason to expect inflation to lift off, no matter what the Fed does," he notes--and the jobs crisis doesn't appear likely to subside in the near future. Barr cites a Goldman Sachs finding last week that since 1950, inflation hasn't risen during a two-year period that began with unemployment above 8 percent. He admits the sample is small--with only 1975, 1981-1984, and 2009-2010 fitting the criteria--but points out that "the current cycle fits quite well in the falling-inflation framework. Inflation has fallen basically straight down since the so-called super spike of 2008."
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