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Bernanke's History Lesson

The Fed chief's study of the 1930s, when central bankers mistakenly kept money tight, may mean he'll dismiss inflation and keep slashing rates
Mark Wilson/Getty Images

Federal Reserve Chairman Ben S. Bernanke went to Capitol Hill on Feb. 27 as if he were a general called from the battlefield to report on the progress of a losing war. The problem, as he explained to the House Financial Services Committee in his semi-annual monetary policy report, is the economy is fighting enemies on two fronts: a financial crisis and an economic slowdown on one side; inflation on the other. The more the Federal Reserve does to fight the financial crisis and potential recession, the worse inflation threatens to be. And vice versa.

It's an unenviable dilemma for Bernanke, who took office two years ago, succeeding Alan Greenspan. The Fed is operating, said Bernanke, "in an environment of downside risks to growth, stressed financial conditions, and inflation pressures."