Educating Ben
'I know you believe you understand what you think I said, but I am not sure you realize that what you heard is not what I meant."</br></br>That quote did not originate with Alan Greenspan, but it is widely attributed to him, perhaps because it so neatly ("eloquently" is not quite the right word) sums up his knack for obfuscation, especially before Congress. By now, new Federal Reserve Chairman Ben Bernanke probably wishes he'd had that sentence printed on a business card when CNBC anchor Maria Bartiromo asked him at a dinner over the weekend whether he thought markets had properly understood him last week.</br></br>The Chairman's testimony last Thursday prompted a mild stock rally on the hopes that the Fed believes it can soon afford to halt its string of interest-rate hikes. Investors always like to believe the end of rate hikes is nigh, because rising rates create greater financial risks. But stocks went in reverse on mid-afternoon Monday when Ms. Bartiromo reported that Mr. Bernanke had told her over the weekend that his testimony had been misinterpreted. To be fair to the new Fed chief, there may be no other job in the world where a handful of words uttered at a dinner party can count for so much.</br></br>However, the real issue is less Mr. Bernanke's dinner-party discretion, or Ms. Bartiromo's, than the Fed's policy intentions. And one reason for market disquiet is uncertainty about how seriously the Fed is taking the risk of incipient inflation. Any new Fed chief has first and foremost to establish his credibility in maintaining the soundness of the currency, and the last few days suggest Mr. Bernanke has some work to do in that department.</br></br>In the wake of his "dovish" remarks last week, the dollar continued its fall to a new recent low -- even against the Canadian dollar. Gold and commodity prices kept rising, and oil staged another charge above $70 a barrel. Even the TIPS spread on inflation-linked bonds widened. In other words, inflationary expectations staged a rally of their own.