Bernanke’s Long Goodbye

WASHINGTON - APRIL 14:  Federal Reserve Board Chairman Ben Bernanke testifies before the Joint Economic Committee April 14, 2010 in Washington, DC. Bernanke testified before the full committee on the topic of "The Economic Outlook."  (Photo by Win McNamee/Getty Images)
National Journal
Jan. 15, 2014, 3:22 p.m.

On Thursday, Fed­er­al Re­serve Chair­man Ben Bernanke will make what is ex­pec­ted to be his last pub­lic ap­pear­ance as cent­ral-bank chief.

The top­ic of his re­marks, “The Fed Yes­ter­day, Today, and To­mor­row,” at the launch of the new Hutchins Cen­ter on Fisc­al and Mon­et­ary Policy at the Brook­ings In­sti­tu­tion, will give the Fed chair­man one last chance to de­fend his tu­mul­tu­ous years at the cent­ral bank through the sub­stan­tial mega­phone unique to the Fed chair­man­ship.

Bernanke, who has been at the head of the cent­ral bank since 2006, has had a lot of time to re­flect on his leg­acy be­fore he hands con­trol to his suc­cessor, cur­rent Fed Vice Chair­wo­man Janet Yel­len, on Jan. 31. The White House an­nounced Yel­len’s se­lec­tion on Oct. 9; since then, Bernanke has giv­en eight speeches and held one press con­fer­ence as a lame duck.

In his last months at the helm, he has em­phas­ized the Fed’s shift to­ward great­er open­ness and de­fen­ded its de­cision to use un­con­ven­tion­al policies to shore up the eco­nomy in the af­ter­math of the fin­an­cial crisis.

“Fos­ter­ing trans­par­ency and ac­count­ab­il­ity at the Fed­er­al Re­serve was one of my prin­cip­al ob­ject­ives when I be­came chair­man,” he said at the Amer­ic­an Eco­nom­ic As­so­ci­ation’s an­nu­al meet­ing on Jan. 3. “Our ef­forts to en­hance trans­par­ency and com­mu­nic­a­tion have in­deed made mon­et­ary policy more ef­fect­ive.” They also, he said, sup­por­ted the Fed’s “demo­crat­ic le­git­im­acy” at a time when the ac­tions it was tak­ing were un­pop­u­lar with the pub­lic (see the “End the Fed” move­ment), and Con­gress threatened to clip its wings.

“I think it’s no ac­ci­dent that he starts [that speech] off with trans­par­ency and ac­count­ab­il­ity, be­cause I think he does feel that, per­haps, was his most last­ing con­tri­bu­tion,” said Steph­en Oliner, a former Fed eco­nom­ist. Un­der Bernanke’s watch, the cent­ral bank began to hold reg­u­lar press con­fer­ences and more ex­pli­citly ex­plain its policy de­cisions and goals.

“In re­sponse to a fin­an­cial crisis and a deep re­ces­sion, the Fed’s mon­et­ary policy com­mu­nic­a­tions have proved far more im­port­ant and have evolved in dif­fer­ent ways than I would have en­vi­sioned eight years ago,” Bernanke told mem­bers of the Na­tion­al Eco­nom­ists Club in a Novem­ber speech ded­ic­ated to the top­ic.

Be­cause mon­et­ary policy and its ripple ef­fects act with a lag, early as­sess­ments of a Fed chair­man­ship can some­times miss the mark. It will take years be­fore his­tory makes its fi­nal judg­ment on Bernanke. Former Fed Chair­man Paul Vol­ck­er was viewed fa­vor­ably when he left of­fice, and is still praised for break­ing the back of in­fla­tion in the early 1980s. Alan Green­span, his suc­cessor, was fam­ously dubbed the “maes­tro” for his seem­ingly mas­ter­ful hand­ling of the eco­nomy when he de­par­ted; the en­su­ing fin­an­cial crisis has called his ten­ure at the Fed in­to ques­tion, and Green­span has since found him­self de­fend­ing the ac­tions he took.

“The leg­acy is not just something you can state the day the guy leaves the job,” said Mi­chael Bordo, an eco­nom­ics pro­fess­or and mon­et­ary his­tor­i­an at Rut­gers Uni­versity. “It takes years.”

Bernanke’s en­deavors to ex­plain his term be­fore he leaves of­fice are con­sist­ent with his long­time vo­ca­tion as an eco­nom­ics pro­fess­or and ex­pert on the Great De­pres­sion at Prin­ceton Uni­versity, said AEI’s Oliner. “He is very in­tro­spect­ive. He’s try­ing to ana­lyze, to un­der­stand what happened dur­ing what turned out to be his own ten­ure. So he is start­ing to write his own his­tory be­fore he [leaves] of­fice.”

He’s also not leav­ing on the same sort of uni­ver­sal high note as his pre­de­cessor, even though the eco­nomy has re­boun­ded some from the depths of the crisis. “When Green­span left, he was al­most wor­shipped,” said Jim O’Sul­li­van, chief U.S. eco­nom­ist at High Fre­quency Eco­nom­ics. “[Green­span], in a way, didn’t have to make his case.”

“There’s more onus on [Fed of­fi­cials] now to ex­plain them­selves,” O’Sul­li­van said. The cent­ral bank’s crisis-fight­ing re­cord didn’t in­gra­ti­ate it to Con­gress, mem­bers of which al­tern­ately chas­tised the Fed for be­ing too meek or too over­reach­ing in its ac­tions dur­ing and after the 2007-2009 crisis. The House Fin­an­cial Ser­vices Com­mit­tee has pledged to spend the year ex­amin­ing the cent­ral bank and of­fer­ing le­gis­lat­ive changes; Sen. John Cornyn, R-Texas, and Rep. Kev­in Brady, R-Texas, in­tro­duced le­gis­la­tion that would es­tab­lish a com­mis­sion to re­view the cent­ral bank. And Bernanke, like Green­span, will have to an­swer for miss­ing the signs of the loom­ing crisis in his early days as Fed chair.

Bernanke has offered few clues as to what, ex­actly, he’ll do when he leaves the Fed. He said last month that he and his wife plan to stick around Wash­ing­ton “for a bit of time.” He joked to Prin­ceton stu­dents as their com­mence­ment speak­er in June that his leave from the uni­versity had ex­pired and the uni­versity might not want him back.

Bernanke told re­port­ers in Decem­ber that he’d be “in­ter­ested to see” what fu­ture mon­et­ary his­tor­i­ans would say about him. “I hope I live long enough to read the text­books,” he said.

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