What made Bernanke come around? I think he recognized—unlike Greenspan—that the inflation this time was more centered on something he couldn’t control, the hoarding of commodities by the Chinese because of the accelerated growth path that country sees as necessary to stave off domestic unrest. He’d be better off urging the Chinese central bank to curtail hypergrowth than stopping our moderate growth before inflation gets out of control. As big as our economy is, we are a service-based economy, not an economy that uses huge amounts of zinc, aluminum, gold, and copper—the complex that had surged because of overseas buying, not ours. I think Bernanke also realized that the huge spike in gas prices wasn’t inflationary as much as it was a tax on growth that would slow our economy on its own volition. Bernanke, in other words, adjusted to the data instead of blindly battling inflation. He trusted the markets in a way Greenspan could never do. He recognized that the economy is already on the other side of the mountain, no longer climbing, no longer in danger of hyperventilating, just trying not to fall off the cliff.
Can Bernanke really stop us before the decline from weak housing, autos, and retail snowballs into an avalanche? I know two things: Greenspan sure wouldn’t—and couldn’t—have done that because of his intransigence once he embarked on a tightening course. And the no-longer-rookie Bernanke just might be able to.
My bet? In the Goldilocks world of the Fed, where rates can’t be too tight or too loose, after last week’s rate statement Bernanke may have it just right. If so, stocks have finished their painful retreat, and you may at last start feeling, if not being, wealthier again. Maybe Bernanke’s a faster learner than I thought. Maybe he no longer had to show vain toughness. Whatever, the market’s reaction—the biggest rally in years—tells you that Bernanke’s now a friend, not the enemy, of your net worth. In a world where we have come to fear the Fed for its ability to make us poorer, Bernanke could make us rich with his flexibility and his ability to hear the markets where Uncle Al had, in the end, become deaf.