After its big move to boost economy, Federal Reserve reflects on its history

These leaders have been a driving force behind the nation's economic policies since the financial crisis of 2008.
By Neil Irwin
Washington Post Staff Writer
Saturday, November 6, 2010; 9:38 PM

JEKYLL ISLAND, GA. - The bankers who gathered on this island resort a century ago to plot out what would become the Federal Reserve System did so secretly, traveling under fake names to avoid attracting attention.

The people who run the organization that those bankers dreamed up were rather less subtle this time around. As Fed Chairman Ben S. Bernanke and a long list of past and present Fed officials gathered this weekend for a conference on the history of the central bank, they were surrounded by security guards in black sport-utility vehicles and TV cameras broadcasting their conversation around the world.

That conversation, particularly a Saturday panel discussion featuring Bernanke, his predecessor, Alan Greenspan, and former New York Fed president Gerald Corrigan, offered a window into how the leaders of the Federal Reserve view their achievements and failures, and their role in a post-financial-crisis world. In particular, Bernanke painted some of the major decisions he has made both during the financial crisis and this past week as consistent with the Fed's founding mission, hammered out on this island a century ago.

The central bank has had no shortage of trials and failures in its first hundred years - the Great Depression of the 1930s and the Great Inflation period of the 1970s most prominent among them. The challenge of the 2010s, it increasingly appears, will be dealing with the aftermath of the most recent financial panic and the Great Recession.

The nation is still grappling with the economic devastation those events wrought, most evident in a 9.6 percent unemployment rate. Just last week, the Fed took unconventional steps to try to bring that rate down and to draw inflation up a bit from its rock-bottom levels, pledging to buy $600 billion of bonds to try to push down long-term interest rates.

Speaking at the "Return to Jekyll Island" conference sponsored by the Atlanta Fed, Bernanke argued that the steps are not as revolutionary as many observers in the financial markets and the news media have suggested.

"There's a sense out there that, quote, quantitative easing or asset purchases are some completely foreign, new, strange kind of thing and we have no idea what . . . is going to happen," Bernanke said, sitting onstage in a conference space that was once J.P. Morgan's indoor tennis court. "Quite the contrary - this is just monetary policy. . . . It will work or not work in much the same way that ordinary, more conventional, familiar monetary policy works."

Corrigan, who was a key lieutenant of Fed Chairman Paul A. Volcker and is now a Goldman Sachs managing director, acknowledged some "uneasiness" with that approach.

"If you seek to nudge up the inflation rate," he said, "even with very, very low rates of capacity utilization in the labor market . . . is there a risk that getting inflation to 2 percent may turn out to be easier than capping it at 2 percent?"

"That's the source of uneasiness that I wanted to register," Corrigan added.

Bernanke defended the action.

"I have rejected any notion that we are going to try to raise inflation to a super-normal level in order to have effects on the economy," he said.

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