Ben Bernanke will preside over his last meeting of the Federal Reserve Open Market Committee today and give his last news conference as chairman of the Federal Reserve Board of Governors. Then he will step down, and leave his reputation to the hands of history. No one can say he had an easy time of it as chairman.
He became chairman in February 2006, when times were prosperous, unemployment low, and the stock market high. But he was soon caught up in the greatest financial crisis since the Great Depression, a crisis that required strong, decisive Fed action to prevent a financial collapse. That Bernanke certainly provided, pouring money into the economy and rescuing from bankruptcy some of the country’s largest financial institutions.
The recovery from that crisis is now in its fifth year, the most reluctant recovery since the Great Depression lingered on year after year in the 1930s. This has forced the Fed to pursue a policy of “quantitative easing,” a euphemism for further increasing the money supply. As it has been buying federal and mortgage-backed bonds (recently at the rate of $85 billion a month) the balance sheet of the Federal Reserve has increased enormously. Getting those assets off its books (and thus reducing the money supply) will be a long and very tricky process. If the Fed does it too slowly, inflation will take off; too quickly, and the economy could sink back in recession. But that will be Janet Yellen’s problem, not Ben Bernanke’s.
It is far too soon to know how history will judge Bernanke. The reputation of Alan Greenspan, chairman from 1987 to 2006, has sunk since he retired as chairman, as it has become clear that he waited far too long to begin tightening and thus damping down the housing bubble that was at the heart of the 2008 crisis. Paul Volker (1979-1987) has seen his reputation only rise. His brave policy (supported by President Ronald Reagan) of inducing a sharp recession in order to break the back of the 1970s inflation produced over twenty years of unprecedented prosperity. Arthur Burns, chairman from 1970 to 1978, is credited, if that’s the word, with being far too accommodative of government borrowing and thus responsible in large measure for the terrible inflation of the 1970s. His successor, G. William Miller, was chairman for only a year and a half and never earned much respect in office or later.
Certainly Bernanke was a strong hand at the wheel of the world’s most powerful bank at a time of great crisis. A weak hand could have produced not a crisis but a catastrophe. For that the country owes him thanks.