Bernanke's Speech

After all the excitement from the FOMC minutes released earlier this week, Bernanke's speech was a bit of let down.  The FOMC minutes showed a number of participants had discussed explicit inflation, price level, or NGDP level targets as a way to better shape nominal expectations.  I was hoping for a follow-up from Bernanke today.  Instead, all we got was an acknowledgment of the obvious.  Others share a similar disappointment.  For example, here is James Politi:

Ben Bernanke, Federal Reserve chairman, did not satisfy everyone’s desires for a decisive, comprehensive, statement on what the US central bank will be doing to address the sluggish recovery in his speech today in Boston.

For instance, he did not even touch some of the more radical moves to tackle inflation expectations that were mentioned in the minutes from the last FOMC meeting in September, such as a nominal gross domestic product target or a price level target.

And here is Brad DeLong:

I am still surprised at the Fed Chair we have. Where is the Fed Chair who was willing to try to get ahead of the problems in late 2008? Or the "Helicopter Ben" of 2003? Or the student of big downturns in Japan in the 1990s and the U.S. in the 1930s.

I hope Bernanke is simply holding his cards close to his chest as cautious central bankers tend to do.  If so, it still is far from optimal. If Bernanke plays his cards right in shaping nominal expectations, a dramatic expansion of the Fed's balance sheet may not be necessary.  All he and the rest of the Fed have to do is state an explicit nominal target and say that they will do whatever is necessary to maintain that target.  This would create far more certainty and better focus the market expectations than the current approach of trying to divine the Fed's true intentions.  We see glimpses of this possibility with the pick up in inflation expectations following all the QE 2 talk by Fed officials. So make it official Ben, announce an official NGDP level target!

P.S. Sorry, I couldn't resist putting in another plug for a NGDP level target in the last sentence.