I think we can add Ben Bernanke's appearance before the House Financial Services Committee on Wednesday morning to the list of "solutions to problems we don't yet have." The Federal Reserve chairman, reports the Wall Street Journal, "outlined the likely path the central bank will take to tighten credit once the economy has recovered enough. "
One key tool: Raising the interest rate paid to banks on reserves currently "parked" at the central bank.
Raising the rate would give banks an incentive to park more funds at the Fed instead of lending it out to companies or households. In this way, the Fed would in the future be able to restrain an economy that is overheating and running the risk of sparking inflation.
An economy that is overheating? We should be so lucky! Notwithstanding the 5.7 percent GDP growth rate registered in the fourth quarter, the health of the U.S. economy is still highly questionable. In fact, the latest evidence suggests that the economy already started slowing down again in January.
The numbers come from a new economic indicator, the Pulse of Commerce Index cooked up by UCLA's Anderson School of Management and Ceridian Corporation.
The Pulse of Commerce Index measures real-time diesel consumption by trucks via Ceridian's electronic card payment system (which, when you stop to think about it, is either pretty neat, just because of its amazingly granular accuracy, or more than a little disturbing, in a Panopticonic, we-know-all, we-see-all, kind of way). The news from January isn't good: The index fell by 36.8 percent from December. Such numbers sound a lot more like air escaping from an overinflated tire than an overheating economy.
But the news isn't all bad either:
"Though the January 2010 number is disappointing, the index is 3.6 percent above its January 2009 level and is similar to year-over-year pre-recession values," said Edward Leamer, director of the UCLA Anderson Forecast and chief economist for the Ceridian-UCLA Pulse of Commerce Index. "Also, the three-month moving average is 2.3 percent above the previous year's value, which is the first time that there has been a year-over-year increase since April 2008, 21 very difficult months ago."
Ben Bernanke can relax. We're not yet looking for an exit from fiscal and monetary stimulus. We're still looking at a long, slow, painful trudge to economic health, in which the present danger is far more likely to be deflation than inflation.