Outgoing Federal Reserve Chairman Ben Bernanke on Friday offered an aggressive defense of his legacy, pushing back against criticisms of the zero short-term interest rates and large-scale bond buying he instituted over the past few years.
Speaking at a conference for academic economists in Philadelphia, Bernanke responded to skeptics of the quantitative easing program who note that U.S. economic growth has been relatively slow despite the Fed's efforts.
Bernanke said that “the recovery has faced powerful headwinds, suggesting that economic growth might well have been considerably weaker, or even negative” without the Fed’s unconventional money-easing policies. Bernanke cited studies finding that the Fed’s bond purchases have lowered long-term interest rates and lifted asset prices in arguing that they have aided the broader economy.
Bernanke identified several factors beyond the Fed's control that have held back a stronger recovery, including “financial volatility associated with the European sovereign debt and banking crisis and the economic effects of natural disasters in Japan and elsewhere.”
The Fed chairman specifically referenced the “prescient” research of economists Carmen Reinhart and Ken Rogoff, who have found that growth tends to be slow following financial crises, and mentioned the possibility that productivity has slowed for reasons unrelated to the recession, echoing former Obama and Clinton economic adviser Larry Summers' recent suggestion that the U.S. is suffering from “secular stagnation.”
In an unusually pointed criticism of Congress and the White House, however, Bernanke assigned special blame for the weak recovery to fiscal consolidation, blaming “counterproductive” tax increases and spending cuts for slowing growth.
“With fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be,” said Bernanke.
The outgoing Fed chairman also reemphasized that the Fed's decision in December to reduce the size of its monthly asset purchases from $85 billion to $75 billion did not mean that the Fed was backing off of its stimulus efforts. That modest tapering of the program, Bernanke said, “did not indicate any diminution of [the Fed's] commitment to maintain a highly accommodative monetary policy for as long as needed.”
The Senate is scheduled to vote Monday on the nomination of Janet Yellen, the current Fed vice chair, to replace Bernanke. Bernanke’s term extends through the end of January.