Market Suffers From Too Much Information

Bernanke also noted that a reduction in energy prices would take the pressure off of inflation, but that volatility in energy and other commodities prices remain a risk to inflation. He added that "the Committee must continue to resist any tendency for increases in energy and commodity prices to become permanently embedded in core inflation."

The Fed's biggest worry is not only overshooting with rate hikes, but also that it has failed to stop inflation before it started, says Harris, noting that "inflation builds up in the system behind the scenes." To be chasing inflation while growth is slowing means you have to "slam the brakes on," and you risk recession, he says. It is the "dreaded behind-the-curve" scenario.

Since the middle of last year, many investors had been hoping the Fed would pause after whatever FOMC meeting was coming up next. The hopeful outcry became the "one and done" mantra, which reached a fever pitch in April. Amid the tailwind of strong first-quarter earnings, investors saw the "Goldilocks" economy within reach. The U.S. had strong growth, healthy companies and a slowing housing market that would land the economy back down to earth while the Fed slid into home base in its tightening cycle. Instead, inflation mars the picture, and markets are losing faith. The Fed has missed the sweet spot. Credibility lost again...

Bernanke has been inconsistent since he took office, and he started out dispelling a dovish perception at his confirmation hearing last November. It seems Bernanke doesn't know how to reinvent himself as the new guy in school. (See the table on the next page.)

The chairman's comments Monday trampled on some investors' resurrected hopes that the Fed had room to pause in June. The Fed, via Bernanke and a gaggle of other Fed speakers, had telegraphed at the end of April that it wanted to pause. Who can blame traders for feeling whipsawed by the Fed's communication "strategy"?