In his recent testimony to Congress, Ben Bernanke unsurprisingly defended the Federal Reserve’s loose monetary policies. The Chairman even pushed back when he was called a dove by citing the consumer price index. However, looking at the bigger inflation picture, the central bank’s track record is anything but stellar.
Senator Bob Corker, a Republican from Tennessee, called Bernanke the biggest dove since War World II and discussed how savers are being punished by the Fed’s ultra-low interest rate policy. He also referred to the Fed’s policies as “degrading.” Bernanke sees things a bit differently.
He responded, “You called me a dove, well maybe in some respects I am, but on the other hand, my inflation record is the best of any Federal Reserve chairman in the postwar period, or at least one of the best at 2 percent average inflation.”
The inflation rate is a controversial issue for many, because the most common measuring stick is the CPI. However, considering hedonic adjustments which factor in quality improvements, and substitution tactics, the index often underestimates inflation and becomes less useful for price comparison purposes. Hidden inflation like smaller packaging and watered-down beer makes the CPI even more distorted.
As a result, several sources have provided some useful charts in questioning Bernanke’s self-proclaimed “best” status…