Channeling Bernanke
By Igor Greenwald Published: June 6, 2006

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GOODBYE KINDLY BEARDED Uncle Ben, friend to Maria Bartiromo and a patron saint of the commodity speculator. We hardly knew you. Hello prickly Herr Bernanke, scourge of inflation and risk-addicted hedge funds.

As transformations go, Monday's was pretty hairy, more Jeff Goldblum in "The Fly" than Claire Danes in "T-3." Sure enough, Wall Street was revolted. By the time the good folks from Payless ShoeSource (PSS: 27.20, +0.29, +1.1%) brought down the gavel at the New York Stock Exchange, silhouetted against a crimson banner emblazoned with "PAYLESS," everyone who could be bothered to buy stocks (and there weren't that many) had done just that.

The chairman of the Federal Reserve is perfectly willing to lead the country into a recession if that's what it would take to avoid stagflation. What purchaser of equities wouldn't insist on a hefty discount after learning that?

That's not exactly what Bernanke said, of course. He pointed out that "economic growth in the United States has been robust" and lauded "the buoyant global economy" for good measure. He promised more "strong" productivity growth "supported by the diffusion of new technologies, capital investment, and the creative energies of businesses and workers."

Maybe it's the chronic hint of quiver in the Fed chief's voice whenever he appears on TV, but even his encouragements rang hollow, as if he were an oncologist giving a pep talk before chemotherapy. He sounded more believable when promising to excise the cancer of inflation, a word that metastasized in 21 locations within his brief address.

The Fed can do exactly two things to slow inflation: It can talk tough, or it can raise interest rates. So when Bernanke feels compelled to cite four troubling price indicators in rapid succession, these are indeed, to borrow his phrase, "unwelcome developments," and if they keep developing there will be market routs bigger than Monday's.

It's a good thing every trading desk on Wall Street is not equipped with a nine-inch Symphonic the way mine is. Because that's the only TV model where the SAP button lets you tune in an incumbent Federal Reserve chairman's stream of consciousness. And if you match up what Bernanke said with what he thought while he was saying it, as I have, you will see that we got off lightly, all things considered.

"It is reasonably clear that the U.S. economy is entering a period of transition."

They call dying a transition. I hope no one takes it that way. Is it too late to change the subject to the benefits of financial literacy?

"Real gross domestic product grew rapidly in the first quarter of this year, but the anticipated moderation of economic growth seems now to be under way."

I told you so, people. You think I'm soft? You think I'm soft? Just wait!

"Consumer spending, which makes up more than two-thirds of total spending, has decelerated noticeably in recent months."

Not where I shop on my Wall Street secretary's take-home, or where Anna shops after her private-school gig. And certainly not at Starbucks, or Lowe's. Now, where was I?

"One source of this deceleration is higher energy prices, which have had an adverse impact on real household incomes and weighed on consumer attitudes."

I know I get down every time I fill up the old Suburban. But then I take a long drive to clear my head, and everything seems a little brighter afterward.

"The housing market is cooling, partly in response to increases in mortgage rates."

Boy, am I glad we refinanced in 2003 during all that hype about deflation. Who knew?

"Gains in payroll employment in recent months have been smaller than their average of the past couple of years, and initial claims for unemployment insurance have edged up."

I wish W's people would stop citing growth in payrolls as some sort of proof of economic competence. They sound like absolute illiterates when they do that.

"Credit conditions for businesses are favorable: Although market participants appear to have become more attuned to risks in recent weeks, corporate bond spreads remain low, and banks are well capitalized and willing to lend."

I bet they're getting more attuned to risks with every word I'm saying. Bon voyage, Vonage. When the spreads widen and the banks stop lending, maybe that fat dude who dances in the commercial will cut you a break.

"Longstanding concerns about global imbalances remain with us as well."

We're living on borrowed time, but fortunately the interest rate is quite low.

"Along with greater national saving in the United States, increased domestic demand in countries with current account surpluses and a greater flexibility of exchange rates more broadly would help to reduce those imbalances over time."

I'm going to devalue the hell out of the dollar. But not all at once, hopefully.

"While monthly inflation data are volatile, core inflation measured over the past three to six months has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth."

So we're probably going to hike this month. I wonder if the CPI includes cable? That bill is really running amok even though Joel's not around to order late-night Pay-Per-Views any more. Hey, I think "Deadwood" starts this week.

"Subdued growth in most broad measures of nominal labor compensation and the ongoing expansion of labor productivity have held down the rise in unit labor costs, the largest component of business costs."

And after I get done here, you can kiss your next raise goodbye. In fact, I'd start updating that resume if I were you. But I'm not. I wonder who'll be reappointing me. McCain? Hillary?

"Anecdotal reports suggest, however, that the labor market is tight in some industries and occupations and that employers are having difficulty attracting certain types of skilled workers."

Examples: Explosives experts for overseas postings. Bilingual prison guards. Ambidextrous hedge-fund bookkeepers. Petroleum engineers with hostage-survival training. FOMC members who can keep their traps shut.

"Some survey-based measures of longer-term inflation expectations have edged up, on net, in recent months, as has the compensation for inflation and inflation risk implied by yields on nominal and inflation-indexed government debt.... These developments bear watching."

If a pollster calls you next week and asks you about your inflation outlook, for the love of God say it's modest. Maybe throw a "well-anchored" in there as well.

"With the economy now evidently in a period of transition, monetary policy must be conducted with great care and with close attention to the evolution of the economic outlook as implied by incoming information."

There's that transition word again. And, of course, everything I say to you today may be overridden by the next set of statistics. It would be kind of funny if I actually said that. Nah, better not.

"The Committee will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained."

And from now on every media reference to Helicopter Ben will cost you 25 basis points on that line of home equity.

Trust me, I transcribed this straight from the Symphonic. It's a marvelous Malaysian-made appliance. Go get one before they mark it up.