Four Fed leaders face questions about their jobs

By Martin Crutsinger
AP Economics Writer

WASHINGTON (AP) - Janet Yellen was put on the spot about whether she made a mistake in raising interest rates in December. Ben Bernanke was quizzed about what it felt like to be called a traitor by the governor of Texas.

Alan Greenspan was asked if he purposely sought to confuse Congress with his answers. And Paul Volcker was queried about being hung in effigy after he pushed interest rates to levels not seen since the Civil War.

The event was an unprecedented gathering of leaders of the Federal Reserve - past and present - to discuss what it feels like to hold what is considered the world's most powerful economic policy-making job.

The four Fed leaders appeared last Thursday evening at an event to launch a speaker's program honoring Volcker at the International House in New York, a residential dormitory for foreign students. Greenspan appeared by video link from Washington.

Together, the tenures of the four participants cover more than one-third of the Fed's 102-year history. Their leadership included the double-digit inflation of the 1970s, the global banking and financial market crises of the 1980s and 1990s and, beginning nearly a decade ago, the worst financial crisis and recession since the Great Depression.

Fareed Zakaria of CNN, who moderated the discussion, asked how the four felt in a job with "so much concentrated power" that opened them up to criticism when the economy was not doing well.

Greenspan, who was often accused of trying to dodge tough questions at congressional hearings with big words and incredibly long sentences, did not deny employing that tactic. But he said, "The real problem is that monetary policy is largely economic forecasting and our ability to forecast is limited. ... How do you convey what you know without going into the area of forecasting beyond our knowledge?"

Bernanke said he didn't like it in 2011 when he was called a traitor by Rick Perry, who was then governor of Texas and a Republican presidential candidate. But he said he realized that criticism came with the job, especially in times when the Fed was trying to pull the country out of the worst recession since the 1930s.

"We had tremendous responsibilities to address these terrible risks," Bernanke said. "I didn't take the job for adulation."

Volcker's policy of high interest rates contributed to pushing the country into two recessions in the early 1980s. But he said even with unhappy farmers and home builders attacking the central bank's policies, the Fed could not have done what it did without broad support from the public for the central bank's attempts to deal with a prolonged bout stagflation, a toxic combination of high inflation and weak economic growth.

"People were unhappy with malaise and inflation going up," Volcker said. "They felt we were doing something."

Yellen, who succeeded Bernanke in February 2014, was quizzed about whether she felt the Fed's rate hike in December, a quarter-point move, had been a mistake. In January, the global economy slowed and financial markets went into a tailspin triggered by rising oil prices and increased weakness in China.

"I certainly don't regard it as a mistake," Yellen said. She said despite the global weakness, the U.S. economy remains on a solid course. She also disputed the suggestion that the Fed's low rates could be fueling a bubble economy.

"This is an economy on a solid course, not a bubble economy," she said, during the hour-long program.

Yellen said that in December the Fed indicated that the pace of future rate hikes would be gradual and she said that remained the Fed's expectation. The central bank's quarter-point move in December was the first rate hike after seven years in which the benchmark rate was kept at a record low near zero. Many private economists believe the next hike will not occur until June.

"We think that a gradual pace of rate increases will be appropriate," Yellen said. "The prospects for continued growth and progress in the labor market look good."

All the Fed leaders stressed that they had not acted alone but with the support of a large group of policymakers and a talented Fed staff, but Volcker said that didn't mean there were not times that they worried about their decisions.

"I did worry. I worried all the time," Volcker said.

He said he sometimes paced so much in his office that he worried about wearing a hole in the rug.


Snapshots of the 4 most recent Federal Reserve leaders

By Martin Crutsinger

WASHINGTON (AP) - Janet Yellen, Ben Bernanke, Alan Greenspan and Paul Volker confronted numerous economic challenges during their combined nearly four decades as leaders of the Federal Reserve. Last Thursday night, they shared their observations.

Here's a look at the key events of their tenures:

Paul Volcker

Volcker served as chairman from August 1979 to August 1987. He had been tapped by President Jimmy Carter to combat a crisis of stagflation - the toxic combination of double-digit inflation and weak job growth that gripped the U.S. economy after the oil shocks of the 1970s. Volcker, then head of the Fed's New York regional bank, told Carter he could fix it.

Fix it he did - by driving interest rates to heights not seen since the Civil War. Those rates triggered two recessions. Yet Volcker succeeded in reducing inflation to acceptable levels - a feat his two immediate predecessors, Arthur Burns and G. William Miller, could not achieve.

"The challenge for Paul Volcker was to be strong and tough enough to do the job that needed to be done, and he was strong enough and tough enough," said Alan Blinder, an economics professor at Princeton and a former Fed vice chairman.

Alan Greenspan

Greenspan's leadership spanned August 1987 to January 2006 - 18 years and five months, a tenure that is second only to Willliam McChesney Martin's 18 years and 10 months.

Greenspan was first tapped by President Ronald Regan and then was re-nominated by Presidents George H.W. Bush, Bill Clinton and George W. Bush. He was dubbed the "maestro" in a glowing book about his Fed stewardship by Bob Woodward of the Washington Post.

He gained acclaim for his management of monetary policy to address the 1987 stock market crash, the mid-1990s Mexican peso crisis and the late 1990s Asian currency crisis. He pursued policies that helped produce a decade of economic expansion, the longest in U.S. history.

But Greenspan's reputation was severely tarnished after he left the Fed, once the housing boom collapsed with dire consequences. He was blamed for, among other things, resisting tighter regulation that could have addressed abuses in home lending.

Ben Bernanke

Bernanke served as chairman from February 2006 to February 2014, perhaps the most momentous period for the Fed in its more than 100-year history.

Bernanke, a longtime Princeton professor before entering government service, had been chairman of President George W. Bush's Council of Economic Advisers when Bush chose him to succeed Greenspan. Though he seemed more the shy academic than an operator suited to the rough-and-tumble of Washington, Bernanke proved a quick study once the financial crisis erupted in the fall of 2008. The years he had spent studying the Fed's mistakes in responding to the Great Depression served him in good stead.

Under his leadership, the Fed invoked all its conventional tools, driving its key policy rate to a record low. Then, once those measures were exhausted, Bernanke unleashed extraordinary measures, never tried before, to help a rescue a financial system that was verging on collapse.

Among other things, he launched a bond buying program to try to keep long-term borrowing rates extraordinarily low. He also presided over emergency lending programs. By most accounts, Bernanke's actions succeeded, though some critics said those very efforts risked laying the groundwork for future financial bubbles.

Janet Yellen

The first woman to lead the Fed, Yellen was selected by President Barack Obama to succeed Bernanke in February 2014. In many ways, her toughest task will be to unwind all the Fed's extraordinary support measures while ensuring that higher rates don't tip the economy back into recession.

In December, the Fed raised its key short-term rate modestly from record lows but has since kept it unchanged. Yellen has stressed that she foresees a gradual and cautious approach to raising rates in which the Fed's policymaking will be "data-dependent."

Yellen also is pursuing a campaign to make the Fed more transparent. Greenspan started the effort in 1994, when the Fed for the first time announced its decision to change its benchmark rate. Bernanke expanded the Fed's policy statements, doubled to four times a year the number of updates the Fed made to its economic forecasts and added a chairman's news conference after four of the Fed's eight meetings each year.

Yellen has adopted all of Bernanke's actions. And she has signaled she wants to go further, in part to answer critics who complain that the Fed remains too secretive and unaccountable to Congress.

Published: Mon, Apr 11, 2016