For a few weeks starting in March of this year I was a Bernanke fan, having been quite pleased with his testimony to Congress that month, and I was impressed that he changed his press conference schedule to commence just after the FOMC statements are released. That all changed after his latest trip to Capitol Hill. He sounded like the same old Bernanke, repeating that monetary policy has its limits and that the Federal Government needs to do its part in sustaining the recovery, reverting back to the same old broken tune.

Thinking about the Sumner critique, the part that if the Federal Government does more fiscal stimulus, the Fed will do less, it really isn’t hard to figure out what Bernanke is really asking for. Of course he also repeated that he doesn’t think that monetary policy can offset the entire fiscal drag. Is it because he thinks that it is impossible, or are there other issues at work?

The way I read it is that when Bernanke starts harping on Congress not helping, he is saying that he doesn’t want to do his job, he doesn’t want to do QE, and that everyone on the FOMC was happier without QE. He is wavering on QE, to the deep hot place with the Bernanke/Evans rule.

But I think that Bernanke and the others on the FOMC have a problem, because if they target inflation, which they have said they are doing, we get nothing out of fiscal stimulus other than rearranging the deck chairs on the Titanic. The Bernanke brand of inflation targeting, a ceiling of 2%, requires a much smaller government to get maximum economic activity out of limited resources. There is no way to fit a triple-XXL government into an absolute minimum inflation target and sub-par NGDP growth and have it not end up hurting.

Bernanke also has another problem, which makes his complaining seem really bizarre. The FOMC adopted an inflation target of 2% and the year-over-year core PCE measure is at 1% as of April and falling. He and his colleagues have to do something about that anyway. Or do they plan on just hanging out in their ivory towers not worrying about how to generate a whole percentage point of core inflation? It makes no sense. If 2% inflation is not the target, then what is?

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