After reading Scott Sumner’s two-part post discussing his counterfactual – what if there hadn’t been any fiscal stimulus – I noticed that my cycles of pessimism and optimism are much different than many of the bloggers I read.
I’ve been seeing signs of “green shoots” with Chairman Bernanke since his testimony to Congress last month. It wasn’t exactly what I wanted to hear; but Bernanke said many things I’ve been waiting years to hear.
He might still be obsessed with inflation privately. I can’t say. All I know is what I see on the outside – the new Chairman Bernanke is a dramatic improvement over the Chairman Bernanke of just a year ago. I like the new one more and more each day; and I feel optimistic that, like Greenspan, Bernanke will have set out a path to repair the mistakes that happened over the course of his term before he departs (if he departs).
Along with Scott Sumner’s second post about his counterfactual, he posted the following graph that shows the Fed forecasts for inflation over a time horizon:
Around the graph he makes a curious statement:
Here’s the money shot: Premature exit strategy
My reaction upon reading it was: God, no!
Perhaps I am having trouble understanding this, what seems like a prediction, because I am not in the economics profession; and perhaps in some ways I do still moo (a joke about how people who don’t understand what’s going on around them are treated – free for the herding). A few months ago, I would certainly have agreed. I was sending shots across Bernanke’s and his buddies’ bows right up until I heard what he had to say (it’s still open-season on the buddies, however, as long as they are obsessing about the inflation bogeyman).
But now, I feel like it’s too early to make that kind of prediction – at least for this year and into 1Q 2014. My line of reasoning is that being right and proving it has its advantages. Bernanke isn’t completely right. But he is now more on the right track than the completely wrong one – the inflation targeting train bound for the deep hot place – and a lot can happen in a year. I don’t necessarily believe that the data in that graph is set in stone – and the more improvement we see as the year progresses, the less certain I think that future will be.
I hope that just this one time, if Sumner is making a prediction, that he’s wrong. It might be a long shot, but if I were placing a bet, I’d bet on Bernanke by a nose.