Much of the econo-sphere seems displeased with Bernanke’s speech at the Boston Fed. Brad Delong sees it as very bad. David Beckworth is disappointed. Krugman sees a central bank that is still turning Japanese.

Perhaps I am giving the FOMC too much credit. It wouldn’t be the first time. Still, while I would have preferred a little more punch, the Fed rightfully takes time to lay the groundwork for big moves. It needs to make sure that market participants carefully absorb what the Fed is trying to do.

Bernanke, doubtlessly, still remembers the volatility induced by side comments to Maria Bartiromo in 2006. Quotes like the following have got to feel like ice in central banker’s stomach

Wall Street gasped as Bernanke slipped, but later analysts could come to no firm conclusion over whether the new Fed chairman really did inadvertently misstep or whether his move was calculated. Uncertainty ruled the day.

Remember also the vast array of opinions which are subsumed under the headline “market participants.” Lets take a sample.

Larry Kudlow in August of this year

The Fed Can’t Print Jobs

By Larry Kudlow

Did the Fed choose stimulus over dollar stability? The greenback fell and gold rose after the FOMC signaled today that it would keep its balance sheet steady by reinvesting the proceeds of mortgage bonds into Treasuries. This is the first Fed policy shift in about a year. It comes in response to a slower economy and disappointing job numbers, with the Fed downgrading its economic outlook in its FOMC statement.

But here’s the central problem. The Fed can print more money, but it can’t print jobs — or capital formation, or productivity. With a trillion dollars of excess bank reserves already in the system, there’s no shortage of money.

Elizabeth MacDonald, Yesterday

Also, financial reform has affected the independence of the Federal ReserveBoard, drawing it closer to Congressional oversight. The Federal Reserve has been monetizing the US debt, and the markets expect even more such purchases of US Treasuries.

Rick Santelli via Zero Hedge, earlier this week

We dare the deflationists out there to look at the charts of coffee, barley, oranges, pork, cotton, rubber, iron ore, and tell us where is this much-hyped deflation…The right answer, of course, lies in one simple word – and as Santelli confirms what every Zero Hedge readers knows, it is “monetization.”

All that is well-known. What is more interesting is Rick’s discussion of what will be the Fed’s next step after another failed QE round: price target levels. This Santelli qualifies as a “Nixonian” approach of price, or specifically, yield controls, such as i.e., 2% on the 10 Year, and the Fed will keep bidding up securities until one after another target is achieved.

Peter Schiff in response to Dudley

NY Fed President William Dudley’s outrageous statements today closely conform to recent pronouncements from other Fed officials and confirm that a massive round of dollar devaluation is poised to begin.

Seemingly overnight, the Fed appears to have altered its mandate, ditching its former goal of “price stability” in favor of “moderate price inflation.” While no one is under the illusion that the Fed has kept prices stable over the last century, it used to be that the governors would at least pretend to fight inflation. Low inflation used to be the aim, now it’s the enemy.

I am sure the list goes on. I haven’t been following the anti-inflation side. I found these quotes simply by Googling the names of people I knew would be upset.

Perhaps, Delong, Krugman and Beckworth are simply trying to provide equal pressure from the opposite side. However, its not difficult to see how the Fed could fear market misinterpretation of its intentions.

This is why this must begin with a careful roll out of the concept that inflation can be “too low.”  This needs to be conventional wisdom and the reflexive response of every financial anchor when Peter Schiff comes on the screen.

“But Mr. Schiff isn’t inflation currently running too low. It seems everyone agrees that deflation could be dangerous.”  Then this chart pops up.

Inflation Sept 2010

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