The Bernanke Files and Inflation

The Federal Reserve is constantly trying to successfully maintain acceptable levels of inflation and unemployment. Unfortunately this a balancing act because an excess of one is often the result of attempting to achieve the other. This is a difficult, thankless job for which the Federal Reserve receives much criticism. If unemployment levels go too high the Federal Reserve is blamed, if inflation goes too high the Federal Reserve is blamed.
However, we at The Bernanke Files have unbiasedly examined the plight of the Fed and the job that they have done in their unending balancing act. We conclude that, in general, the Federal Reserve has maintained realistic levels of both unemployment and inflation. More importantly, though, we have also found overwhelming evidence that shows that the Federal Reserve has learned from its mistakes! In the 1970s, after the Federal Reserve maintained policies that would lead to inflation, the Federal Reserve realized their mistake and reversed their position. This occurred on October 9, 1979, five months after Carter replaced Arthur Burns with Paul Volker as Chairman of the Federal Reserve. Inflation subsided, but unemployment skyrocketed. This occurred because of Volker's belief in the Monetarist Experiment which limited the printing of money. Investors didn't like this policy and reacted by not investing, thus driving unemployment to over 10%. By 1982, though, Reagan and Volker and Reagan realized the Monetarist Experiment emphasized inflation too much and ignored unemployment altogether, so they once again reversed their position by printing money until the cows came home. By the late 1980s inflation and unemployment have evened out.
The point of this little story is that while the balancing act the Fed must attempt on a continual basis is difficult, they are the right person for the job. The Bernanke Files looks at how efficiently the Federal Reserve has responded to this crisis and concludes the excessive inflation is nothing to worry about! Chairman Bernanke implemented never before seen policies to offset a potential Great Depression II, and it would be naive of us to say that he doesn't have as good of a playbook to offset inflation when the threat occurs (and we believe it will once the economy begins to recover).