Feeling Bernanke’s pain: Why the Fed is stuck

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The bad job and car numbers, and the dismal start of the year for stocks -- the Dow fell 4.2% this week -- have rekindled hopes for aggressive rate-cutting by the Fed. But as the reliable Lou Barnes explains, Fed Chairman Ben S. Bernanke (pictured) is stuck. Not only is he stuck, he can’t even freely discuss why he is stuck.

To revive the housing market, Barnes reasons, Bernanke wants mortgage rates to move lower in the long term. But if the Fed moves too aggressively in slashing rates, the result is either inflation or inflationary fears in the bond market, which both have the same result: higher long-term interest rates.

Barnes: ‘The economy and especially housing need lower long-term rates; if the Fed appears to abandon discipline, long rates will rise no matter how far the Fed cuts. ... The appropriate Fed policy cannot be discussed in public. No Fed chair can tell the American people: ‘We will be slow to ease on purpose, following the economy downhill, making no effort to preempt recession until inflation is clearly under control.’ ‘

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Photo Credit: AP