Ben Bernanke thinks the Federal Reserve did a great job.
Bernanke, who was chairman of the Federal Reserve from 2006-2014, thinks the Fed did all it could’ve done to stabilise and repair the economy in the wake of the financial crisis.
Writing in The Wall Street Journal on Monday — in conjunction with the release of his book, “The Courage to Act” — Bernanke said that while the Fed and monetary policy can’t be the “only game in town” for the US economy, things are certainly a lot better than they would have otherwise been.
The current unemployment rate — 5.1% — is near what some would consider “full employment.”
And while Bernanke concedes there is still low wage growth and weak participation, he writes: “But there is no doubt that the jobs situation is today far healthier than it was a few years ago. That improvement (as measured by the unemployment rate) has been quicker than expected by most economists, both inside and outside the Fed.”
Inflation, which is running below the Fed’s target, has also been a point of contention among critics of the Fed.
Current Fed officials — notably chair Janet Yellen — have conceded that while the Fed is well below its inflation target or 2%, this has largely been chalked up “transitory” factors like the price of oil.
But low inflation is not where the Fed was thought to be making a mistake. The fear was that they’d stoke hyperinflation, which has very clearly not happened.
Bernanke writes that, “if there is a problem with inflation, it isn’t the one expected by the Fed’s critics, who repeatedly predicted that the Fed’s policies would lead to high inflation (if not hyperinflation), a collapsing dollar and surging commodity prices. None of that has happened.”
And on balance, Bernanke thinks the economy has gotten to a point where it can no longer be the Fed’s responsibility to lead the economy forward.
“With full employment in sight, further economic growth will have to come from the supply side, primarily from increases in productivity,” Bernanke writes.
“That means that the Fed will continue to do what it can, but monetary policy can no longer be the only game in town. Fiscal-policy makers in Congress need to step up… Monetary policy can accomplish a lot, but, as I often said as Fed chairman, it is no panacea.”