Today, July 21, Bernanke reported to Congress. This hearing was expected to be a challenge for Bernanke because he had to balance the markets expectations. On the one hand, some investors believe we have printed so much money that inflation is imminent. On the other hand, some believe the economy is still too fragile to quit stimulating the economy. Bernanke had to keep inflation expectations low while making sure others believed the Fed would continue growing the economy.
So, how did he do? The Bernanke Files gives him an A.
Why? Let's look at the numbers:
Remember, if bond interest rates go lower, INFLATION EXPECTATIONS ALSO GO LOWER. Here is the graph of what the rates did today:
Bond .....Change in Rate
5-Year ...... -.032
10-Year ...... -.030
20-Year ..... -.013
30-Year ..... -.026
As this data shows, interest rates clearly went lower today. Bernanke subdued any rational inflation expectations.
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If the bond yields are a measure of how the inflation rate is expected to go, what would be a measure of how much the Fed will continue to grow the economy? And did that also stay where Bernanke wanted it?
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