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Ben Bernanke and Janet Yellen, the chief occupants of the Eccles Building for the last 12 years, appeared together at the Brookings Institution Tuesday. Glenn Hutchins, vice chair of the Board at the think tank, commenced the event – dubbed the Fed Duet – by citing an old Fed tale: “Only hawks go to central bank heaven.” Some would beg to differ.
Tapped by former President George W. Bush, Bernanke served two terms as Fed Chair from 2006 to 2014. He was succeeded by Yellen, who served a single term from 2014 to 2018. To say that they did a lot more harm than good for low-income and middle-class Americans would be an understatement.
Bernanke performed a 90-minute sit-down interview with his successor. The former heads of the Federal Reserve mused on inflation, discussed “irrational exuberance,” and chuckled about facilitating the destruction of the U.S. dollar. OK, well, the last one didn’t happen, but it would have if it were a forum of honesty rather than mendacity.
Yellen Dismissed ‘Irrational Exuberance’ Warning
Prior to embarking upon a career of central planning, former Fed Chair Alan Greenspan was quite the free market champion. In fact, Greenspan could be called a disciple of legendary 20th century philosopher Ayn Rand, promoting the benefits of the gold standard and slamming the Federal Reserve System.
This vanished when he helmed the Fed, though there were signs that he understood the dangers of the central bank. In the 1990s, speaking at the American Enterprise Institute at the start of the dot-com bubble, Greenspan spoke of “irrational exuberance,” a warning that the market was overvalued. It became one of the most important speeches in Fed history.
When Yellen first read his speech, she thought it was designed to put the public to sleep. Ultimately, Yellen conceded, she didn’t think it would have much impact on stocks.
She recalled in the question-and-answer session:
“He showed it to me in advance, and he asked my opinion, and … I think it was something like page 26 of this speech. Here was this reference to ‘irrational exuberance,’ and I thought nobody is going to be awake by the time he gets to do this, and this is just deeply buried.
I thought this was too mild and nobody would get the point. That was an error in judgment on my part.”
This is reminiscent to the time when she admitted she did not see the housing bubble and the subsequent recession. Did Yellen get anything right in the swamp?
Should the Fed Raise Inflation Target?
For the last several years, the Fed has maintained a 2% target for inflation. There has been behind-the-scenes talks of raising the level, which is something that critics prognosticated would happen with rising inflation, a trend becoming ubiquitous in the economy.
Yellen concurs that it would be prudent for the central bank to take another look at inflation. However, she does not believe Congress and the market would agree because a higher target would disturb “well-anchored inflation expectations.”
Both Bernanke and Yellen endorsed a 2% inflation target in the 1990s and 2000s, but she noted that the economy was accelerating faster back then. Yellen added that prosperous countries did not endure unwanted deflationary periods.
The former Fed head said:
“To me it is worth considering the costs and benefits, but it’s not clear, ‘Yes, we should have a higher target.’ But moving to a higher inflation target is a tricky business. The transition would be a difficult one that could un-anchor inflation expectations.”
A Dull Fed Talk
For an influential policymaker’s first public appearance since leaving one of the most powerful institutions in the world today, the discussion was a hebetudinous and disappointing affair.
The first half focused on Yellen’s academic career and her transition to the Federal Reserve Board. The second part failed to delve into the meat and potatoes of the financial crisis, priming the pump, the multiple market bubbles, and the erosion of the greenback.
Considering how much has happened over the last decade, the two figures could have conversed on a diverse array of subjects. The Fed’s multi-trillion-dollar bank bailout, Bernanke’s contentious hearings with former Representative Ron Paul (R-TX), the $6 trillion of new money flooding the system, and Yellen speaking with President Donald Trump are just some of the topics they could have covered. But this would have lifted the curtain a bit too much, and a surreptitious agency would never want to do that.
How would you rate the tenures of Ben Bernanke and Janet Yellen? Let us know in the comments section!