The Fed...a continuing saga...

After kicking the bee hive (with a seemingly innocuous move), Bernanke and Fed now find themselves backtracking.

An expensive trial balloon, to be sure, and the objections for the Fed audit due to "independency" concerns becomes less credible.

The upcoming Humphrey Hawkins testimony will be important for Fed watchers: discerning any new metric besides unemployment is key.

With Core prices falling, Bernanke's own play book calls for ZIRP.

Feb. 20 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke will probably assure Congress that the central bank is mindful of the lack of job growth in the U.S. and an increase in the benchmark interest rate isn’t imminent after the Fed’s decision to raise the cost of direct loans to banks.

The Fed chief will deliver his semi-annual report on the economy and interest rates to House and Senate panels Feb. 24- 25. Fed officials last month forecast growth of 2.8 percent to 3.5 percent this year, and minutes of their January meeting showed they are seeking more evidence the recovery is sustainable.

New York Fed President William Dudley indicated yesterday that policy makers need to focus now on maintaining growth rather than fighting inflation, citing a smaller-than-forecast increase in the consumer-price index for January reported by the Labor Department. Another measure of prices, which excludes energy and food, dropped for the first time since 1982.

“Monetary policy is about the economy,” Dudley, a voting member of the rate-setting Federal Open Market Committee, told reporters after a speech in San Juan, Puerto Rico. “We need to see solid growth and job creation.”

Consumer prices rose 0.2 percent in January from December, and so-called core prices unexpectedly fell 0.1 percent. The report “showed there’s no inflation pressure,” Dudley said. “So our focus needs to be on growth and jobs.”