THE BLOG
07/17/2013 10:42 pm ET Updated Sep 16, 2013

Sound Principles of Driving, Federal Reserve Edition

Ben Bernanke, the Chairman of the Federal Reserve, is a great and honest communicator. And many of his analogies have ended up in common usage -- be it the "green shoots" of an economic recovery or "the unusually uncertain outlook."

The last few weeks have not been an exception. This includes Wednesday's remarks at his semi-annual Congressional.

Mr. Bernanke went out of his way to again reassure us that the Federal Reserve will not prematurely curtail its support for the economy. In doing so, he tried to resolve what is perceived within the Fed as unnecessary market confusion between "tapering" (reducing the amount of securities that the Fed purchases outright each week) and "tightening" (selling securities and/or raising interest rates).

As he was appearing in front of members of Congress, Mr. Bernanke refrained from using nifty analogies. It is a shame. A few weeks ago he found a particular good way of making the tapering/tightening distinction -- namely, the difference between easing a little on the accelerator and tapping the brakes.

All of which brings to mind an image that speaks to a consequential challenge facing the Fed and the U.S. economy: the risk of a gradual decline in this powerful institution's policy responsiveness, adaptability and flexibility.

It is likely that, at some stage within the next few years, the Fed will need to exit from its highly-experimental monetary policies. The hope is that it is able to do so in an orderly fashion because its key objective is attained -- namely, that of promoting high and sustained economic growth with low and stable inflation. The risk is that the collateral damage of policy experimentation overwhelms the benefits.

Put another way, and keeping with the car theme, the Fed is dealing with the realities of a vehicle parked in a very tight spot. The car wishes to exit. Yet every time it moves, either forward or back, it risks immediately hitting something and creating damage.

I suspect that many of us have been in such a position. We know that it is not a good idea to force it, bumping cars on both sides in order to make room. Rather, it is about a very careful and gradual exit -- one that involves multiple small steps and frequent re-assessments.

This is an inevitably time consuming and delicate process. It requires patience and is far from easy.

Having succeeded in temporarily restoring calm to the markets after the May/June upheavals, Mr. Bernanke (and his successor) still faces the more difficult challenge of regaining policy flexibility for an institution that is central to the well-being of the U.S. and that of the global economy.