Confusion From the Fed Head

So, is the problem the message or the messenger? Speaking like a true economist, it's both. Bernanke has kept his promise of being forthright with the investing public. And I do believe there was a time when he thought that a pause in the interest-rate increases was a credible option. Then, for whatever reason, he abruptly decided against it. Bernanke isn't the only economist prone to changing his position. When accused of being inconsistent, famed British economist John Maynard Keynes once quipped, "When the facts change, I change my mind. What do you do, Sir?"

Unfortunately for the new Fed chairman, the financial markets aren't always as understanding, and ultimately they will determine Bernanke's fate. The Fed chairman may be appointed by the president and confirmed by the Senate, but his real bosses are on Wall Street. Continued confusing talk and uncertainty will produce volatile market fluctuations, and cause all sorts of havoc -- not what Americans want to see, given the uncertainty of the housing market and the energy situation.

Let's hope Bernanke will get some good takeout and find a fortune cookie with the Chinese proverb, "Be quick in action, but cautious in speech." If inflation is indeed a concern, boost those interest rates -- the markets will be grateful in the long run. If inflation shows signs of slowing, then pause and await incoming data. But whatever the decision, don't talk about it. In time, market participants, bond traders and market analysts will come around to appreciate the soft speech and swinging of a big stick. And their message to Bernanke will always be perfectly clear.

ryamarone@argusresearch.com

Richard Yamarone is vice president and director

of economic research at Argus Research and author of

"The Trader's Guide to Key Economic Indicators" (Bloomberg Press).