Is Ben Bernanke Worried About Deflation?

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I have an important and confusing job. Photo: Andrew Harrer/Bloomberg via Getty Images

Every year, the members of the Federal Reserve and other top economists get together in Jackson Hole, Wyoming, basically to hash out the conventional wisdom. (Think of it as a dorkier version of Davos.) There are no formal votes, and it's not a congressional hearing, so basically it's an opportunity for Chairman of the Federal Reserve Ben Bernanke — lord of the money supply, second-most powerful man in America, and so on — to explain what he's going to do to keep the economy from barreling into a ditch by winter.

And, if Bernanke's speech today is any indication, he's laying the groundwork for more aggressive Fed action against deflation. (Quick recap: In recent months, fears of inflation have kept the central bank from cutting rates, buying up securities, and taking other sorts of aggressive action that would help unemployment. This has been bad for the economy.) He laid out a series of steps the Fed could take to loosen up the credit markets if things got even worse. "The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary," he said, using the narcoleptic language of a central banker.

The key part of the speech comes a little later, where it sounds like he's holding back until he makes investors a little less freaked out by the inflation hawks. (The bandwagon is filling up, and the fact that the Fed guys in New York are worried doesn't hurt.) As Bernanke put it, if the Fed is better at "providing maximum clarity" about what it they can do, improve their "flexibility to use securities purchases to provide additional accommodation, should conditions warrant."

Most reports indicate that Bernanke isn't especially worried about inflation, but, unlike previous Fed gurus Paul Volcker and Alan Greenspan, he's not an autocrat and tries to reach consensus among the twelve members of the Fed Open Market Committee. Problem is, the Obama administration has been slow about filling empty slots on the committee, where internal dissent has resulted in the very stalemate Bernanke is trying to break.

(Catches breath.) Basically, he sounds reassuringly deliberate and a bit too vague. You can see why Obama likes him.

Bernanke Signals Fed Is Ready to Prop Up Economy [NYT]