Fed Struggles to Convince Markets

The Wall Street Journal reports:

The Federal Reserve is having trouble delivering a new message about how far it expects to raise interest rates: It isn't sure.

Financial markets, having grown accustomed to the Fed telling them where rates are headed, seem unwilling to hear that new message. After nearly two years of raising rates, the Fed's efforts to convey that it isn't certain where they are headed now have been read by markets, instead, as a forecast of where it will take rates. Changing interpretations of that forecast have been roiling the markets in recent days.

A potentially bigger problem for new Fed Chairman Ben Bernanke is that, with the latest growth data robust and inflation ticking higher, markets also seem to fear that the Fed will stop raising rates too soon. Since Mr. Bernanke talked last week on Capitol Hill about the possibility of a pause in the Fed's rate increases, bond and commodity markets have signaled increased concern about inflation.

The Fed's reputation as fighting inflation is on the line.