Ignore Fed Hawks, Bernanke in Driving Seat: Alan Blinder
Federal Reserve Chairman Ben Bernanke would not risk a premature withdrawl of the stimlus that has underpinned the U.S. economic recovery, former vice chairman of the Fed Alan Binder told CNBC.
In a testimony to Congress on Wednesday, Bernanke sounded a dovish tone, remarking that the premature tightening of monetary policy carries a "substantial risk" of slowing the economic recovery. But in an answer to a question from a congressional committee, he also said the central bank could start paring back purchases in a couple of months and these comments helped send U.S. stocks lower.
"All you hear about is what if the Fed overstays its hand and we get inflation. They could make an error like that, but they could also make an error of withdrawing the accommodation too soon - and he [Bernanke] made that point very strongly today," Blinder told CNBC late Wednesday in New York.
Hawkish members of the central bank have been vocal about their belief that quantitative easing should be wound down sooner rather than later.
Several hawks have argued that the committee should be comparing labor market conditions now with September when the third round of quantitative easing policy was enacted, leading them to gauge that the time for tapering is now.
(Read More: Fed Hawks, Doves Divided Over Improved Labor Market)
"The market should understand that the Fed is very badly split. There are hawks, doves and even some super hawks. Esther George has been dissenting all through the year. (But) the Bernanke side is winning," he said. Esther George is the president of the Federal Reserve Bank of Kansas City.
Investors should know that the "Bernanke faction" - which includes the vice chairman of the Federal Reserve and the president of the Federal Reserve Bank of New York - is in the "driving seat", Binder said.
(Read More: Cramer: Can Bull Survive Without Bernanke?)
"The voices that really matter at the Fed are talking very differently to the people that are saying we should get out of this. Many of them thought we never should have gotten into this in the first place - that's very different from Ben Bernanke's attitude," he added.