Amid the dollar rout of the 1970s, Treasury Secretary John Connally famously told a group of fretting Europeans that the greenback “is our currency, but your problem.” If you read between the lines, that’s also more or less what Federal Reserve Chairman Ben Bernanke said yesterday as he made the case for further Fed monetary easing.
Mr. Bernanke broke no new ground in explaining why he believes inflation at less than 2% is too low and why the Fed must encourage greater inflation to reduce the 9.6% jobless rate. “Inflation is running at rates that are too low [his emphasis] relative to the levels that the [Fed Open Market] Committee judges to be most consistent with the Federal Reserve’s dual mandate in the longer run,” he said. That dual mandate is to maintain stable prices and low unemployment, and Mr. Bernanke’s message couldn’t be clearer that cutting the U.S. jobless rate is now Job One at the Fed.
We were more struck by what Mr. Bernanke didn’t say. In a nearly 4,000-word speech about inflation, the Fed chief never once mentioned the value of the dollar. He never mentioned exchange rates, despite the turmoil in world currency markets as the dollar has fallen in anticipation of further Fed easing. He never mentioned rising commodity prices or soaring gold, and his only reference to the recent increase in the price of oil was by way of dismissing it in the context of overall low inflation.
The chairman’s message is that the Fed is focused entirely on the domestic U.S. economy and will print as many dollars as it takes to reflate it. The rest of the world is on its own and can adjust its policies as various countries see fit. If other currencies soar in relation to the dollar, that’s someone else’s problem. For the sake of the U.S. and world economy, we hope this turns out better for Mr. Bernanke’s reputation than it did for John Connally’s.