Frozen in the headlights

Today Fed Chairman Bernanke, testifying before the Joint Economic Committee of Congress, avowed that the Fed was not yet ready to start removing monetary stimulus from the US economy. According to Bernanke, the stimulus program is providing significant benefits to the US economy.  Without it, growth might slow or even stop, and inflation would fall further.

Well, maybe so, and the markets certainly seem to be applauding.  But you'd like to know (well, at least, I'd like to know) just how the Fed will manage the removal of stimulus when the time comes.  I just came across this highly worrisome quote from Richard Fisher, President of the Dallas Fed,  which confirms something I've suspected for some time.  (Hat tip to The EconoMissed blog for the reference). 

We are blessed at the Fed with sophisticated econometric models and superb analysts. We can easily conjure up plausible theories as to what we will do when it comes to our next tack or eventually reversing course. The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. And nobody — in fact, no central bank anywhere on the planet — has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank — not, at least, the Federal Reserve — has ever been on this cruise before. – Richard W. Fisher, speech at Harvard Club, September 2012

Notice that Fisher said that more than half a year ago.   You'd hope that those "superb analysts" have been working away at those "sophisticated econometric models" in the interim, trying to figure out the best way to end the stimulus without tanking the economy.  However, there's nothing in Bernanke's latest testimony, or in anything else that's come out of the Fed lately, to suggest that they've got it figured out. 

UPDATE, May 23: After I posted this piece, markets promptly took a turn for the worse.  Reconsideration of Bernanke's comments?  Probably not.  I think this quote, from a story on the BBC website, gets it about right:

Neil MacKinnon, economist at VTB Capital, said that while the financial markets were focused on Mr Bernanke's comments, in his view "it says more about an equity market that is 'overheated' and due a correction rather than any suggestion from the Fed that monetary stimulus is about to be withdrawn".