Bernanke to the Rescue

After a modest sell off, albeit one accompanied by a sharp rise in volatility, Mr. Bernanke once again rode to the rescue. Appearing in his semi-annual Humphrey Hawkins testimony to Congress, the Fed chairman re-assured the market.

 In the current economic environment, the benefits of asset purchases, and of policy accommodation more generally, are clear: Monetary policy is providing important support to the recovery while keeping inflation close to the FOMC's 2 percent objective. Notably, keeping longer-term interest rates low has helped spark recovery in the housing market and led to increased sales and production of automobiles and other durable goods. By raising employment and household wealth--for example, through higher home prices--these developments have in turn supported consumer sentiment and spending.

There in fact has been talks among the jittery wall street types that the Fed chairman may address the possibility of ending asset purchase sooner.  However, the effectiveness of monetary policy depend just as much on credibility as it is on setting interest rates. Whatever private concerns Mr. Bernanke may have, he has to maintain his unwavering public stance. It is clear that the Fed is trying to raise asset price to foster stronger economic activities. It will continue to do so until the stipulated bonds of inflation and unemployment rate have been breached.

Advice for investors: don't fight the Fed.