The headline of the Post's article on Fed Chairman Ben Bernanke's testimony before the House Financial Services Committee tells readers that "Bernanke Rebuffs Frank on Rate Cut." According to the article, Frank had pressed Bernanke about the possibility of a rate cut, given projections from the Fed and elsewhere of slowing growth and rising unemployment. The article reports that Bernanke rejected the suggestion, citing the need to remain vigilant against inflation. The article implies that Bernanke's position is based on a solid body of economic research: "Bernanke's remarks partly reflect years of research that has debunked the idea of a long-term trade-off between unemployment and inflation." Actually, Mr. Frank was not proposing that the Fed lower rates with the idea that there would be a long-term trade-off between inflation and unemployment, he was suggesting that the Fed could lower rates and thereby lower unemployment, with no clear impact on inflation. This is exactly the path that Alan Greenspan followed in the mid-90s when he allowed interest rates to stay low and the unemployment rate to continue to fall even though the unemployment rate was already below 6.0 percent, the generally accepted estimate for the NAIRU (non-accelerating inflation rate of unemployment) at the time. The Greenspan experiment refuted the prevailing economic views about the relationship between inflation and unemployment. At this point, there is no widely accepted body of research on this topic . It is inaccurate to imply to readers that Mr. Bernanke is relying on a large body of research in rejecting suggestions for a rate cut. He isn't.
--Dean Baker