Ben Bernanke and the Federal Reserve voted to stand pat last week, ending the most shocking escalation of monetary firepower the country has ever seen.
Reality kept the Fed chairman from landing on an aircraft carrier and declaring mission accomplished. The Fed's goals include "maximum employment." Nobody considers 14 million jobless Americans — 9 percent of the workforce — maximum employment.
In any case it's too early to analyze what Ben hath wrought, for better or worse. If hopes that unemployment would drop to 7 percent haven't been realized, neither have fears that inflation would soar. Rather than giving up, the Fed is watching and waiting and poised for more stimulus before next year's presidential election.
Critics on the left point to relatively low inflation as evidence that the Fed has room for more stimulus. Soaring consumer prices are the most-feared side effect when the Fed mainlines money into the economy. Year-over-year inflation in May of 3.6 percent was more than negligible, but price pressures have been easing since then thanks to lower oil and gas costs.
Even so, "core" inflation, which doesn't include food and energy prices, shows signs of accelerating. Many economists consider core inflation a more reliable indicator of long-term price pressure because food and oil prices flop around a lot.
For May, core inflation popped 0.3 percent, its largest increase since summer 2008, before the financial crisis. And with the country's large trade deficit, there is substantial risk that inflation in places such as China will be imported into the United States, adding to upward pressure on consumer costs.
It's true that long-term U.S. interest rates, which are basically inflation-prediction machines, show few signs of concern. The yield on the 10-year Treasury bond has fallen back below 3 percent recently, implying that investors expect inflation will be substantially less than that. (Bond investors always want their return to exceed increases in the cost of living.)
Even if consumer prices weren't a concern, however, Bernanke has other things to worry about — namely, the stock market.
In the 1990s the Fed's money-supply increases helped create the Internet stock bubble. That didn't end very well, so the Fed turned on the money spigot again to help the economy recover from the dot-com bust. That helped create the housing bubble, whose denouement was even more disastrous than that of the Internet craze.
Bernanke doesn't want to achieve a hat trick. And the Fed's stimulus of the past two years already makes its profligacy of the 1990s and the early 2000s look like one of Ron Paul's tight-money fantasies.
Short-term interest rates are just about zero, meaning borrowed money is virtually free in the market for overnight bank loans. In two rounds of "quantitative easing," the Fed has also worked to bring long-term rates down by buying bonds. It holds $2 trillion in Treasury and mortgage securities, having basically financed the huge government deficits of the past two years.
Bernanke didn't sprinkle $100 bills from helicopters, as he half-jokingly threatened to do during the slump after the dot-com meltdown. But this time he came close.
Largely as a result, stock prices have soared all over the world. The Dow Jones Industrial Average is up more than 80 percent from its 2009 low. As measured against corporate profits, stocks are looking a little expensive. There is a building bubble in social-media offerings and other technology stocks. If another round of quantitative easing from Bernanke — "QE3" — leads to Dow 15,000 and then another crash, Bernanke won't just look ineffective. He'll look dumb.
Critics on the right say that quantitative easing has failed, which is impossible to prove or disprove. Unemployment is brutally high, but it would probably be much higher without the Fed's extraordinary ministrations and the federal fiscal stimulus.
The New York Times made it sound as if Bernanke has gone off to the Hamptons to play tiddlywinks. "At the end of June, the Federal Reserve finished its work and rested," was the first sentence of its story on the Fed meeting.
But the Fed is still very much engaged. With its gigantic bond portfolio and its pledge to buy new debt securities when the old ones mature, the central bank has the equivalent of 2 million troops deployed in Recessionistan. Just because it's not boosting that to 3 million doesn't mean the boots on the ground aren't having an effect.
It may well be that more escalation is needed. But it's far from obvious at this point that the benefits would outweigh the risks.