Since Federal Reserve Chairman Ben Bernanke testified before Congress's Joint Economic Committee Wednesday morning, commenting on the economic outlook and responding to questions from lawmakers on the likely path of monetary policy, financial markets have experienced turmoil. Triple-digit gains in the Dow Jones Industrial Average turned negative later that afternoon. That spurred a 7.3% plunge in the Japanese stock market, which in turn dragged down bourses in Frankfurt, London, Paris and Rome on Thursday morning—sending U.S. stocks on a roller-coaster ride.
Mr. Bernanke must be thinking: "Was it something I said?"
We should be asking ourselves a different question: Does it make sense for financial and economic outcomes to be so highly dependent on the pronouncements of a single individual? Would it be better if monetary policy were more rules-based and less discretionary?
In the midst of heightened concern over the hazards of overreaching government agencies, this may be a propitious moment to review the Fed's outsize role in determining the price and availability of capital. Instead of granting sweeping powers based on the judgment of its chairman—or relying on the collective omniscience of its 12-member Federal Open Market Committee—we would do well to examine whether some objective rule or standard might better calibrate the supply of money and credit to the needs of the real economy.