Coming right up: Big Ben’s first post-Greenspan bubble

Jim Jubak argues that Fed head Ben Bernanke will show in 2009 he’s all grown up and capable of producing inflationary bubbles on his own. He spares no bones about his analysis:

Do the members of the Federal Reserve think we’re stupid? Do they think we don't understand that their quick fix for the economy and the financial markets in 2008 is going to completely unravel in 2009?

Do they think we can't see that they’re setting up the economy and the financial markets for a replay of the bust-to-boom-to-bust cycle that followed the bursting of the stock market bubble in 2000, in which easy money created a housing bubble that has now burst?

The Fed’s actions of the past five months are going to lead to higher inflation or higher interest rates (and a slowing economy again) in 2009. Apparently the Fed doesn’t think we can read between the paragraphs of its Jan. 30 press release and see that coming.

Jubak notes that 2007 inflation, especially “headline inflation,” which does include the stereotypically “volatile food and energy prices,” climbed well above the Fed’s target levels. He notes a recession will cool that off, but the deep 1.25 percent slash in interest rates means the Fed could itself be undercutting that economic slowdown to the point inflation becomes worse in 2009. And, Jubak says if some Fed-watchers are right, and Big Ben cuts the funds rate another full percent this year, inflation will roar in like a lion next year.