The Federal Reserve announced yesterday that it would keep its benchmark interest rate steady in the 0-0.25% range through mid-2013.  This breaks with longstanding Fed practice of avoiding specific timeframes in setting its policy.  The Fed generally tries to strike a balance between giving investors signals about its future actions without backing itself into any commitment corners, so that it can react to changing market conditions.  That balance has now been tossed aside in desperation.  This move is supposed to inspire confidence in capital markets by signaling longer-term policy consistency.

Aside from the dubious nature of such a goal, a larger question looms: Can Ben Bernanke see the future?  

If not, then why would he attempt to guarantee a steady interest rate for the next two years in the face of one of the most volatile economic periods in American history?  Even from a perspective that accepts the Fed's role in the economy as necessary or beneficial, this two-year pledge is ridiculous and dangerous.  It took barely over a year for the stock market to fall by half in 2008-9, and just two years to gain most of that back.  Who knows what could happen in the next two years?

Well, evidently Ben Bernanke does.  In addition to bald-faced central-planning hubris, this latest move demonstrates a new level of desperation on the part of the Fed, exchanging a (doubtful) short-term boost in confidence for a significant future unknown.  If price inflation kicks in over the next two years, the Fed will either have to break its pledge, thereby undermining any remaining trust it holds in the capital markets, or hold to it, throwing fuel on the fire.

The Fed is playing Russian roulette with the American (and world) economy and I'm afraid there may not be any empty chambers.