The Fed dances.

• Position: OFF THE NEWS

It is not easy being Federal Reserve Chairman Ben Bernanke these days. After the subprime mortgage crisis hit last August, which led to a credit market meltdown, Bernanke was forced to fight off demands from many financial market traders and investors that he slash short-term interest rates on the spot. Under his predecessor, Alan Greenspan, markets had come to expect the potential for so-called "between meeting" interest rate cuts in times of severe market panic.

Clearly, Bernanke was attempting to achieve a surgically precise handling of a difficult situation. On the one hand, he wanted to avoid the kind of moral hazard complications associated with between-meeting rate moves. On the other hand, he was determined to make clear to the markets through various statements and speeches that the FOMC was not oblivious to the potential negative effects to the real economy and was ready to act at its upcoming September 18th meeting in the event the macroeconomic situation looked to be deteriorating.

Yet as the former Princeton economics department chairman was laying out plans for this delicate Fed dance with financial markets, four of his colleagues bounded...