For months, Federal Reserve Chairman Ben Bernanke has been suffering from a version of the Batman Conundrum. (The Joker has placed The Batman's girlfriend and best pal in danger in two different places. With the clock ticking, whom should the Dark Knight choose to save?) Does Bernanke try to save our wages and investments from inflation or our jobs from slow growth and unemployment? Which is in greater danger?
Well, the Federal Open Market Committee chose to do nothing at its meeting today, leaving interest rates unchanged at 2 percent. An examination of its statement sure leaves the impression that for now the Fed is more worried about growth. One example: In its previous statement, the FOMC said risks to growth were "diminishing somewhat." Today, though, the statement merely said that "downside risks to growth remain." While Bernanke & Co. would probably love to raise rates, they are catching a break from the big drop in oil. Not only does that relieve inflation pressures, but it also helps wage and job growth. Economist Bernard Baumohl puts it this way:
I see this as a wink by Bernanke and other doves telling us that the inflation outlook is looking better thanks to the decline in commodity prices and the rise in the dollar. But to minimize the number of dissenting votes, the FOMC still had to maintain its very tough talk against pricing pressures.
Look for the Fed to stay on hold until at least after the presidential election.