Fed Chairman Ben Bernanke testified before the Joint Economic Committee today on Capitol Hill. He seemed to spook investors a little by walking back some of the widespread interpretation of the minutes of last week's meeting--an interpretation that sparked hopes of falling rates later this year and, in turn, a tidy little rally in the capital markets.
Inflation tends to be a lagging indicator, so evidence of unhelpfully rising prices may be yesterday's news. Alternatively, recent increases in oil prices may flow through to other segments of the economy, especially as seasonally higher gas prices hit this Summer.
But if this Fed behaves like its recent predecessors, the next move down in the Fed Funds Rate may come only after unmistakable evidence of a meaningful slowdown in economic activity. It's a brutally difficult job: promote growth, restrain inflation, get the timing right, make sense of endless streams of often conflicting data. Historically, Fed tightening cycles haven't ended especially well. Let's hope they get it right this time.