Ben Bernanke will complete his second and final term as Federal Reserve Chairman this week. The eight years he has chaired the Fed were some of the most tumultuous since the Great Depression. Chairman Bernanke took over his position under former President George W. Bush in 2006, and was reappointed in 2010, approximately one year into Barack Obama’s first term in office. Most economists think that Bernanke did a reasonable job as Fed chair, but that certainly is not a unanimous view. People on the extreme left and right are both happy to see him go for one reason or another, and will continue their efforts to end the Fed. However, having extremists dislike you from both sides may be a sign that you were actually leading from the center (to a degree).
One of Bernanke’s hallmark legacies was the increasing role of information transparency through the use of Fed press conferences and increasing the amount of publicly available information that was made available. The increasing use of the Fed’s “open mouth” policy, was not flawless however, as a few notable occasions led to market turbulence and uncertainty about their future actions. In 2013 for example, the Fed’s announcement led to a rapid rise in mortgage rates when the Fed hinted that the economy might be doing well enough to begin easing off of stimulus measures (i.e., quantitative easing). So far, demands for information (i.e., auditing the Fed) by the far right have been defended by Bernanke and others, but that does not mean these demands will end with a new Fed chair who was widely disliked by the far right.
At this week’s meeting, it appears that U.S. and global inflation pressures are muted, however markets are jittery with earnings season upon us the Fed appears ready to continue the QE3 taper. What this means is unclear however, since the Fed is almost sure to point out that the Fed is actually still easing, just doing so at a slower pace than before. So, currently the FOMC members appear to believe that the economic conditions in the economy are improved enough that tapering can continue without pressure of higher inflation.
Questions you might want to answer
- Is there anything remarkable about the current and former Fed chair being widely disliked by extremists of both parties? What does this say about policy and its effectiveness? Do you have any statistics you could use to support the belief that the Fed has done a good or bad job in the last eight years? How will Bernanke’s legacy be settled? Look back at how Greenspan’s legacy was settled after the financial crisis.
- Should the Fed be more or less transparent? Why? What issues has the Fed had with transparency in the past? Has it always been this way, or was there a point at which the Fed was an even more secretive organization than it is today? What would happen if the Fed were required to submit to monetary policy audits by the GAO? Do you believe this would undermine the Fed’s independence?
- What do you believe the Fed’s actions this week will have on the economy? Why do they continue to taper? Do you have any statistics on this or anything else that would support your beliefs?
Do not try to answer all of these questions, just parts of one. You have only 250 words or so to respond, so please do not try to argue too many points. Spreading yourself too thin makes for a bad blog comment.