Business-Insider

by S. Wade Hansen

Ben Bernanke, chairman of the U.S. Federal Reserve, addressed the House Financial Services Committee in Washington today. And as Fed chairman are wont to do, he waxed eloquent and opaque. Hedging his bets, he uttered this clarifying gem:

"Should high rates of overall inflation persist, the possibility also exists that inflation expectations could become less well anchored."

In case you can't figure out what in the world he is saying here, don't worry. I've cracked the code. You see if you take the first letter from each word, you get the answer:

"SHROOIPTPAETIECBLWA"

Which, if you unscramble it, gives you:

"RPIEECBTOSOAWTLIPHA"

And there you have it. Voilla! The dimal code unlocked.

OK, all joking aside, while Bernanke's statements were veiled, they did provide quite a bit of insight into how the Fed views the current state of the U.S. economy. Here are are few statements and my take on what the ramifications for the U.S. economy and the USD are:

Quote: "The Federal Open Market Committee will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.''

Translation: You had better believe we are going to cut rates in March. Keep on buying stocks, Wall Street.

Quote: "A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability."

Translation: Honestly, we have no idea if we are overshooting this whole "cut-interest-rates-at-all-costs" thing, but we're taking a stand and hope we don't screw up inflation too much.

Quote: "The economic situation has become distinctly less favorable since the time of our July report."

Translation: We've been pushing on this string by trying to lower interest rates, but there's only so much we can do.

Quote: "The risks include the possibilities that the housing market or the labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further."

Translation: Stupid banks. Just declare your losses and start lending to each other and consumers again. Can't you see that the U.S. economy has worked itself into a position where the only way it can continue to grow like it has in the past is if we all recklessly borrow like we did in the past?

The takeaway from all of this is the Fed is going to continue cutting interest rates in the near term. This should continue to weaken the USD for a while. However, the Fed may be forced to change its stance later this year to combat rising inflation.

Make some good money now as the USD weakens, but keep watching the horizon for signs of a change in the Fed's stance---they certainly seem willing to change direction if they need to.
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