A fair point, but I think the real interesting thing on his blog is the previous post:

"Here's a thought...maybe part of the reason the credit markets are in such bad shape because the Fed raised rates too fast and too high. Think about it--they started raising rates in June, 2004. It was a quarter point increase, from 1 to 1.25. Two years later, the Fed funds rate was up to 5.25. That's four percentage points in only two years.

And who was affected by the increase in the Fed funds rate? Well, not corporations: They saw their rates fall over this period. Conventional mortgages edged up by half a percentage point. Credit card interest rates rose by about a percentage point.

The big losers were precisely one group: Holders of adjustable rate mortgages who could not refinance into fixed rate mortgages. Did I hear someone say 'subprime'?

Basically the Fed took a sledgehammer to the subprime sector in order to slow the economy...they should not be surprised that it broke.

In retrospect it would have been better for the Fed to have stopped at 4% and waited for a while to see what happened. If we assume that it takes 12-18 months for the effect of rate changes to propagate through the economy, they basically showed too much impatience."

I definitely agree that part of the impetus for raising rates was to slow the runaway boom in the housing sector, but I'd never really thought about it in these terms. It certainly appears that rather than the "soft landing" the Fed sought to achieve, they overshot and let all the air out of the balloon.

Yeah, that is very interesting and insightful. I hadn't thought of things that way. I wonder, however, what the CPI would look like today if Bernanke hadn't been so aggressive?

Also very true, Jay (regarding CPI). Which underscores just how difficult the Fed's job is, especially in an environment where soaring commodity prices push up inflation and push down growth. The threat of stagflation looms ever larger.