Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Dynamic Maximizers®
  • Retirement Compounders®
  • Free Email Signup

Bernanke’s Biggest Fear

November 11, 2010 By Jeremy Jones, CFA

The Fed created an uproar on Wall Street this week by changing the language in its post-meeting Federal Open Market Committee (FOMC) statement. The FOMC is, of course, the committee that sets monetary policy at the Federal Reserve. The new language that excited investors was the following:

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

This is language investors have not seen from the Fed before. Bernanke & Co., apart from consistent FOMC dissenter Thomas Hoeing (apparently the only sane member of the FOMC), have redefined the term “stability.” The last time I checked, “stability” was the quality of being unchanging or not liable to change. By that definition, the Fed is as close to achieving its goal of price stability as it has been in decades. Inflation is running at only 1.1% today compared to a long-term average of 3%–4%. The closer the rate of inflation is to zero, the more stable prices are. Yet the Fed wants inflation to increase, which would make prices less stable. How does that make sense? It doesn’t. The Fed is not concerned with price stability; it is concerned with the low inflation rate. The doves on the FOMC want to inflate away the nation’s problems.

Bernanke’s biggest concern is undoubtedly home prices. Many homeowners are already upside down in their mortgages. Others have a thin margin of equity. An increase in the number of upside-down-mortgage holders could lead to a surge in strategic defaults. That would wreak havoc on the financial system. This is Bernanke’s biggest fear, and this is why he is and will continue to be quick on the easy-money policy trigger. In his mind, a destructive debt deflation is the only alternative.

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • Is the Fed the Biggest Risk to the Economy?
  • Today’s Biggest Risks
  • Is China’s Economy Addicted to Real Estate?
  • Author
  • Recent Posts
Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #5 in CNBC's 2021 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
Latest posts by Jeremy Jones, CFA (see all)
  • The Clock is TikTok-ing on Legacy Social Media Platforms - May 13, 2022
  • The Innovation Bubble Goes Bust - May 12, 2022
  • Institutional Investors Fall in Love with Oil, Again - May 12, 2022

Search Young Research

Most Popular

  • Don’t Throw Your Bond Portfolio Out the Window
  • You Can Do Better than Mutual Funds and ETFs with Your Cash
  • Will Market Prices Soon Be Meaningful Again?
  • FAANGS Fall Like a Ton of BRICS
  • RAGE GAUGE: INVESTOR CARNAGE—Losing Control of Your Money
  • The Truth About the S&P 500 is Finally Out
  • FRIEND OR FOE: Are You Investing with Time, or Against It?
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?
  • Junk Bond Yields
  • EV Stocks Have More to Lose than Most

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Could this Be the Vanguard GNMA Winning Edge?

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

RSS The Latest at Richardcyoung.com

  • WATCHING YOU: Italy Deploys Stealth Social Credit System
  • Baby Formula Gone Missing?
  • Is Your Financial Advisor Hiding the Truth About ESG?
  • BUSTED BUDGETS: Families Can’t Afford Democrats’ Anti-Energy Regulations
  • PRICES SOAR: Diesel Shortage Could Cripple America’s Economy
  • Conflict Between Democratic Sovereignty and Transnational Progressivism (Globalism)
  • “The Great Object Is that Every Man Be Armed”
  • MARKET CHAOS: This May Take Time, Here’s How to Prepare
  • Chris Masterjohn Is One of My Favorite Researchers Worldwide
  • The Rolling Stones in France

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2022 | Terms & Conditions

loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.