Federal Reserve Chairman Ben S. Bernanke gave a sprawling reflection on his dramatic eight-year tenure at the helm of the nation’s economy Thursday in his last public appearance before leaving office at the end of the month. But perhaps what was most surprising about his story is how familiar it has become.
The Princeton University professor took over the central bank in 2006 with a vision of turning the historically secretive institution into a more transparent organization. Little did he know how important that mission would be, as the Fed battled the financial crisis that struck just two years later and sought to explain its unconventional stimulus weapons to the world: short-term interest rates at the zero lower bound, trillions of dollars in large-scale asset purchases, international swap lines, Operation Twist and bank bailouts.
“It’s like, if you’re in a car wreck, you’re mostly involved in trying not to go off the bridge. And later on, you’re like, ‘Oh, my god,’ ” Bernanke said at the launch of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy.
The Fed scrambled to explain what it was doing to investors and the public. There was Bernanke, giving “60 Minutes” a tour of his home town of Dillon, S.C., and talking about the Fed’s dual mandate to stabilize prices and promote maximum employment. There was Bernanke, giving lectures to undergrads at George Washington University on the financial crisis. There was Bernanke, batting at questions from reporters at Fed news conferences — a transformative step for an institution that only began announcing its decisions publicly 20 years ago.
“I tried where I could to bring the story not just to markets and other economists, but to a more Main Street audience,” Bernanke said. “It was very challenging, frankly, to do that.”
The Fed is also increasingly relying on communications itself, or what it calls “forward guidance,” as a policy tool. It is promising to keep interest rates low well past the time when the unemployment rate reaches 6.5 percent, as long as inflation remains well-behaved. It said it will keep pumping money into the recovery until there is “substantial improvement” in the labor market.
But just because Bernanke speaks doesn’t mean that investors or the public are going to understand what he’s really saying. Miscommunication by the Fed (or misunderstanding by investors) took investors on a a roller-coaster ride in U.S. and global stock and bond markets last year.
And yet Bernanke kept talking to the point of sounding like a broken record at times. (Tapering is not tightening, anyone?) Markets eventually settled down, and the Fed is now considering its path for reducing stimulus.
“We hope that as the economy improves, and as we tell our story . . . people will appreciate and understand what we did was necessary and in the interest of the broader public,” Bernanke said. “It was a Main Street set of actions aimed at helping the average American.”
Hmm, sounds like a good premise for a book, one in which we hope Bernanke will spare no words.