In a June 20 editorial entitled Bernanke's Market Week the Wall Street Journal blamed the Federal Reserve. Specifically they wrote:
Earlier this month, Chairman Ben Bernanke signaled a turn in Fed policy to include a focus on maintaining a "stable" dollar. Sure enough, the dollar strengthened, the price of oil fell and stocks crept up. Then earlier this week, someone in the upper reaches of the Fed began leaking to the press in advance of next week's FOMC meeting that Mr. Bernanke saw no reason to raise interest rates this month, or indeed until the autumn.
Sure enough, oil shot up and gold rose back above $900 an ounce, with equities tanking in turn on stagflation fears. Throw in renewed worries over credit problems in the banking system, and the markets had a very ugly week.
What we can't figure out is what in the world Fed officials are thinking, assuming that's even the right word. The most precious commodity a Fed Chairman has is credibility. When he makes a widely advertised public commitment to maintain dollar stability, and then he or his minions leak that he has no plans to back that up with any action, he is squandering his own currency. Central banking isn't an academic seminar where ideas don't have consequences.
With inflation climbing around the globe, most of it inspired by dollar weakness, the Fed has a growing credibility problem....
The Wall Street Journal's attempt to get its foot out of its mouth relies upon its ability to rewrite history. They pretend that oil and gold prices started to shoot up last week after the Federal Reserve leaked to the press that they were not planning to raise interest rates this month. But oil shot up on June 6, way before the leak, while the Federal Reserve was still planning the higher interest rate policy to fight inflation that the Wall Street Journal was praising.
The Wall Street Journal also ignores the fact that the Federal Reserve's short-lived tight money policy plans were reversed partly because of a report that was released by the Bureau of Labor Statistics on June 6. That day, the Bureau of Labor Statistics announced that U.S. unemployment had shot up from 5.0% in April to 5.5% in May, which could explain why the Fed is not about to raise interest rates right away.
The editors of the Wall Street Journal are increasingly divorced from reality. It is amazing that the Republican leadership still tries to follow their economic advice. Fortunately for the United States, Federal Reserve Chairman Bernanke realizes that he shouldn't follow their advice.