Former Federal Reserve Chair and current Brookings Institution economist Ben Bernanke gave an interview this week, conveniently right before the key December meeting of the FOMC. The former Fed Chair doubled down on his controversial "accomplishments" while at the helm of U.S. monetary policy, and generally praised the state of the country's economy.
Revision of the Record
From the comfort of his new gig at the Brookings Institution, Bernanke can look back on his tenure as Fed Chair with rose-colored glasses. He claimed that he and his colleagues never imagined interest rates would remain this low for this long. Yet, interestingly enough, Bernanke gave a speech when he first became a Fed Board of Governors member where he advocated for zero-interest-rate policy (ZIRP) and more. The doctrine now bears his name.
Bernanke also observed that "the economy has actually done a little better than we have anticipated but in terms of overall growth it’s been less good." This is a charitable way of recasting the reality that, even if the Fed can target and jig numbers like unemployment or the value of the dollar, it can't artificially stimulate economic growth.
Yet, when pressed, he fired back that "the idea that somehow the Fed is somehow artificially manipulating interest rates is not very logical." He objected to the characterization of "artificial rates" to begin with, and dismissed any "of the purported bad side effects of QE."
This was not a surprising tone for the interview to strike given its beginning. After suggesting it was inappropriate or in poor taste for someone who formerly held a job to second-guess the person who replaced them, Bernanke proceeded to second-guess current Fed Chair Janet Yellen. It's not that Yellen is beyond reproof (far from it) but that it's weak for Bernanke to criticize her and hedge his reputation against the potential failure of Fed policies. Not a very courageous position for the author of The Courage To Act (published October, 2015).
There were a few things that Bernanke gets right in the interview that we would be remiss not to give him credit for. When asked about how the use of QE and negative interest rates gives central banks little ammunition left to combat a recession, Bernanke acknowledged the limitations of monetary policy to right the economy. He said that sound fiscal (spending) policy must be undertaken in tandem with what the Fed does, meaning that Congress must hold up its end of the bargain by reigning in spending. It's fair to call for more coordination between the two. This disconnect between the monetary and fiscal authorities of an economy is exactly what dooms the euro and the European Union.
When asked, "doesn’t your policy prescription—tax reform, sensible immigration reform, infrastructure spending—make you sound like a Democrat?" Mr. Bernanke avoided answering, choosing instead to assert that most economist don't disagree about such policies. (Bernanke is a registered Republican.) Moreover, he portrayed the toxic political atmosphere the Fed has created among the Republican Party as merely a case of a lot of "populism," and that it will change over time.
You can read the full interview, conducted by MarketWatch, here.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.