Standing in his kitchen one morning in Washington, DC, drinking a glass of slightly scented water, Ben Bernanke is wearing a gray suit, button-down shirt, no tie and a pair of Brooks sneakers. He seems far from his time in the Federal Reserve, where he chaired for eight years during what until recently was considered the most uncertain financial moment of the last half century.
But the coronavirus pandemic and its economic impact – the withdrawal of overnight employment, combined with an inflow of money unprecedented in history and now seemingly irreversible inflation – made Mr Bernanke think. And writing. Mr Bernanke was in a kind of self-imposed quarantine, writing the book “Monetary Policy in the 21st Century: The Federal Reserve from High Inflation to Covid-19”, which will be published on Tuesday.
Mr Bernanke describes the book as “academic”, but at this particular point it may be a uniquely practical book as the public seeks to better understand the powers of the Federal Reserve and Congress to stimulate or slow down our supply chain economy. crunchiness and huge demand. The former president’s book itself is an example of the crossroads that are unfolding in our economy: “Given supply chain disruptions, this book took six months to go from the final manuscript to the store,” he said.
Mr. Bernanke, who wrote the book “When it became clear that I would not travel much and that we were home for a while” in the early days of the pandemic, provided history to the Federal Reserve – his own Thesis was on the 1929 disaster. and its implications, which he said have taught him valuable lessons about how he reacted to the recession in 2008. This time, however, his focus is not on 2008, but on how the Federal Reserve reacts to different economic scenarios for more. for a century, touring readers through the reins of various Fed presidents such as Alan Greenspan. Readers are likely to be particularly focused on Mr Bernanke’s analysis of the 1970s, which may be the closest analogue to what is happening in today’s economy.
He hopes that Jay Powell, the current chairman of the Federal Reserve, can help curb inflation without having to implement the extreme measures taken by former Fed chairman Paul Walker in the 1970s, or send the economy to recession.
But he also suggests that the nation may be in a period of stagflation, a word Bernanke says was coined in the 1970s.
“Even in a favorable scenario, we need to have a slowing economy,” he said. “And inflation is still too high, but it’s falling. So there should be a period in the next year or two in which growth is low, unemployment has risen at least a little and inflation is still high, “he predicted. “So you could call it stagflation.
He is particularly aware that unexpected inflation could quickly become a political issue – likely to put the Federal Reserve in the public spotlight – in a way that even unemployment does not cause. “The difference between inflation and unemployment is that inflation only affects everyone,” he said. “Unemployment affects many people, but most people do not react too much to unemployment because they are not personally unemployed. Inflation has a social impact. ”
Mr Bernanke seems to be somewhat concerned about the Federal Reserve’s confidence in the public consciousness, especially given the aggressive approach he took in 2008 and which Mr Powell continued during the pandemic. “I had this fantastic conversation in my head between Jay Powell and William McCasney Martin, where I think Martin would probably have had apoplexy or something like that because of the different things the intervention chairs did,” he said, referring to Mr. Martin. , chairman of the Federal Reserve from 1951 to 1970.
In the book, Mr Bernanke discusses how he has sought to improve the Federal Reserve’s reputation for independence by making it more transparent, including holding press conferences. “In everyday life, we judge the authenticity of promises more by the reputation of the promisers than by the exact words they use,” he said. “The same principle applies to the promises of the central bank. Trust in the central bank depends in part on the personal reputation and communication skills of key politicians, but since politicians cannot permanently bind themselves or their successors, the reputation of institutions is also important. Due to concerns about the reputation of the institutions, politicians have an incentive to keep promises, even those made by their predecessors. “
Updated
May 16, 2022, 7:17 am ET
Mr. Bernanke left the Fed as chairman in 2014, but remained in Washington, D.C., where he is an associate at the Brookings Institution and a senior adviser to investment firm Pimco. He said he preferred not to have to make the decisions that Mr. Powell is facing now, or to endure hours of testimony in Congress in which his decisions were called into question.
Instead, he prefers to think of the role with slight removal and the ability to talk about political issues he avoided.
Asked if he thought the student debt should be forgiven, the pause on his trademark disappeared: “It would be very unfair to remove it. Many of the people who have large sums of student debt are professionals who will go on and earn a lot of money in their lifetime. So why would we prefer them to someone who hasn’t been to college, for example?
Or what about changing the Federal Reserve’s inflation target? There is no pause. “Inflation targets should not be used as a short-term tool, you know?” If you raise the inflation target to 3 percent for a short-term goal, then why not 4 percent, or why not 3.5 percent, or why not create a group, or whatever? ”
The good news is that Mr Bernanke is not worried about the 2008 crisis. He is concerned about house prices, saying they have “risen a lot, around 30 percent in the last two years”.
“This is something that needs to be monitored,” he said, but unlike in 2008, the mortgages that are given to buy these houses are generally much better than the first-class mortgages of 15 years ago.
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