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In a prepared speech Monday, Federal Reserve Chairman Ben Bernanke took special care to remind reporters that fighting inflation is a Number 1 priority of the Fed.

From his remarks:

"While monthly inflation data are volatile, core inflation measured over the past three to six months has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth."

In English: If inflation continues at its current pace, it could be damaging to the economy as a whole.

And then, the bombshell:  "These are unwelcome developments."

For some idea on how powerful those four words were, take a look at how many times the phrase showed up after just 36 hours on a few popular search engines:

• Google: 498 listings
• Yahoo: 309 listings
• MSN: 628 listings
• Technorati: 70 listings

Those four words are why the Dow is off 246 points so far this week.

For a Fed Chairman who promised to be more open and plain-talking, traders are repeatedly caught off-guard by the Chairman's remarks.  This tells me that "openness" does necessarily quell "uncertainty" in the market.

In the wake of Bernanke's remarks, traders flipped (AGAIN!) on their sentiment about inflation and are now expecting at least a 0.250% increase at the FOMC's June 28-29 meeting.

Source
Deciphering Ben Bernanke
Jeannine Aversa
MiamiHerald.com; June 07, 2006

http://www.miami.com/mld/miamiherald/business/national/14756410.htm

FRB: Speech, Bernanke--Panel Discussion: Comments on the Outlook for the U.S. Economy and Monetary Policy--June 5, 2006
federalreserve.com

http://www.federalreserve.gov/boarddocs/speeches/2006/20060605/default.htm

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.