The Kroog Versus Helicopter Ben's Presser

Paul Krugman wasn't too impressed with Ben Bernanke's first ever Federal Reserve press conference yesterday afternoon.

So Bernanke did get asked why, given low inflation and high unemployment, the Fed isn’t doing more. And his answer was disheartening.

As far as I can tell, his analytical framework isn’t too different from mine. The inflation rate to worry about is some underlying, inertial rate rather than the headline rate; the Fed likes the core personal consumer expenditures deflator; and this rate has actually been running below target, indicating that inflation isn’t a concern:

So this says that there is no tradeoff: more expansionary monetary policy is good in terms of both unemployment and achieving the Fed’s inflation target.

But then, when asked why no further expansionary policy, he replied that he’s concerned about the “tradeoff”, that inflation might rise.

This doesn’t make any sense in terms of his own expressed economic framework. I think the only way to read it is to say that he has been intimidated by the inflationistas, and is looking for excuses not to act.

Krugman's onto something here.   Food and energy prices are up substantially.  But overall inflation isn't.  As I've said before the number one indicator of actual inflation is rising wages...and if anything, wages for most Americans have been falling as hours worked, overtime, and hourly rates have dropped as higher paying jobs have been replaced with lower paying ones.

But it's clear that the austerity hysterics have gotten to Helicopter Ben and that he plans to end QE2 in June, on schedule.  If the Fed won't do anything, then the game is over, and the economy will grind to a halt as the last buyer of record is taken out of the picture.

2012 is going to be ugly.