The Fed wasn’t to blame for the financial crisis Ben Bernanke told the American Economics Association in Atlanta yesterday. The Fed Chair’s address presented a lot of careful research by Fed economists showing that a simple Taylor Rule analysis using CPI headline inflation would indicate Fed monetary policy was much too easy from 2003 into 2006, but if real time forecast PCE inflation is used, Fed monetary policy was reasonable. This is an important point – many policy decisions look bad in hindsight, but if you examine them in terms of what information was available when they had to be made and in terms of what forecasts were used, they look much better. Bernanke didn’t use these words, but I will: if Monday morning quarterbacks are so smart, why aren’t they rich?



