Academic journal article Business Economics

An Interview with Ben S. Bernanke

Academic journal article Business Economics

An Interview with Ben S. Bernanke

Article excerpt

In this interview, Dr. Bernanke recounts the concerns of his early days as chairman of the Federal Reserve in 2006 and the onset of the 2007-09 financial crisis. He then turns to the collapse of Lehman Brothers and AIG and its fallout. He emphasizes how important it is for the public to understand the Federal Reserve and what it does and the consequent importance of clear communication. Turning to postcrisis policies, he discusses unwinding quantitative easing, the global low-interest rate environment, and the importance of the Federal Reserve in maintaining financial stability. He expresses his confidence that recent measures make the U.S. economy less vulnerable to financial shocks than before the crisis. He also makes comments on income inequality and the housing market and discusses the statistics that he monitors regularly on the U.S. and global economies. Business Economics (2015) 50, 3-11. doi: 10.1057/be.2014.38

Keywords: Federal Reserve, financial crisis, Lehman brothers, transparency, communication, congressional relations


BERNANKE: Your introduction reminds me of when I was a Class Day speaker at Harvard's graduation while I was Chairman of the Federal Reserve, the speaker at the next day's ceremonies being J.K. Rowling of Harry Potter fame. The student who introduced me said, "I am pleased to say that our graduation speakers this year are two of the giants of children's fantasy fiction." I thought that was pretty good.

Before we start, I would like to thank NABE for the invitation and for the recognition. I very much appreciate it; and I want it to be known that while I was on the Board of Governors, both as chairman and before that, NABE regularly came and talked to us and gave us industry insights. These economic insights were very useful to us and were always very entertaining and very interesting. So, NABE is making a contribution at the policy level and certainly at the intellectual level and business level: I thank you very much for that.

RYSSDAL: I thought that what we would do to start, Dr. Bernanke, is to establish a baseline history of your time as Chairman. Your first day on the job was February 1, 2006. Acknowledging that you had been at the national level in economic policy for some while, what was your sense in that first couple of days on the job? What were you expecting?

BERNANKE: Well, I had been on the Board of Governors of the Fed for a few years and knew the folks there, so I was trying to acclimate myself to the new role. I suppose that one of the first things I did was actually worry about the possibility of financial crisis. Even the day before I was even formally sworn in, I met with all the senior staff; and I wanted to know: What do we have for such an eventuality? What kind of preparation do we have? What kinds of playbooks do we have? The result was that they basically showed me a 1983 publication that had Ronald Reagan's phone number in it. I'm exaggerating only slightly.

So there was not that much. While I am not going to over-claim here, during my first days as Chairman we did set up a group of senior staff to look at financial stability issues and report to the Board. But, as we have learned since then, of course, that is not something that can be done on the cheap. It requires very substantial investment, which the Fed has since made.

The other thing, of course, is that I became Chairman in early 2006. We were in the process of normalizing policy from the early 2000s when the rates had been very low, so the Fed had been raising rates. The immediate question we had was at what point we would stop the rate increases. Some of my first contretemps with the Congress, the media, and the markets came with over disagreements about exactly when that would happen. That was what was in our minds in that first year.

RYSSDAL: We will get to Congress, the media, and the markets in a minute. But just as a side bar, what happens between the time you are actually confirmed by the Senate and the time you start work? …

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