WASHINGTON -- There are times when the best thing the Federal Reserve Board chairman can do is say as little as possible. This is one of those times.
The financial markets are volatile enough, with global jitters over terrorism, oil prices surging to unprecedented highs and the specter of a nuclear Iran threatening to interrupt fuel supplies. But Fed Chairman Ben S. Bernanke's conflicting statements about the economy and inflation have only made things worse.
One moment Bernanke hints the Fed may pause its interest-rate hikes, then he says inflation is really not that bad and, now, this week, he raises new concerns it may be worse than he previously believed.
Bernanke came into the chairmanship promising a clearer picture of the Fed's thinking, but that promise has turned into a topsy-turvy roller-coaster ride of contradictory public statements that have agitated the stock markets and left investors increasingly anxious about their financial future.
Monday's near-200-point drop in the Dow Jones industrial average was the latest example of what Bernanke has wrought in the short time he has been at the Fed's helm. He has left many investors longing for the days of former Fed chief Alan Greenspan, whose murky microanalysis of economic matters was often so opaque no one could be sure what he meant.
There are a number of reasons I think Bernanke and the Fed are overemphasizing the threat of inflation and in danger of sandbagging an economy that remains strong.
The first is the inflation-measuring yardstick. It is woefully outdated and often excludes price-deflating movements in the economy as a result of cost-savings technologies, higher productivity that has lowered per-unit production costs, a competitive global economy whose imports have held prices down here and a revolution in downsizing that has cut overhead while boosting sales, profits and reinvestment.
Average consumers have seen prices plummet on products once beyond their reach -- from cell phones to desktop computers, telecommunications costs to generic drugs. It's a long and growing list but one not fully included in the government's inflation basket.
Bernanke says the core inflation rate, which excludes volatile energy prices, is running between 2.3 percent and 3 percent, above the Fed's 1 percent to 2 percent target. I think the core rate is closer to the Fed target and, even if a bit higher, tends to be absorbed in a massive $12 trillion economy.
And what exactly has so frightened the Fed into hammering the economy with much higher interest rates?