Will Bernanke Be The Hero Or The Goat? The Next Couple Years Will Tell The Tale.

Time: Bernanke May Be Most Revolutionary Man in a Century

Thursday, 21 Nov 2013 02:06 PM

By Michelle Smith

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Federal Reserve Chairman Ben Bernanke for years has been the global economy's most influential man. And he may walk away from the job as the most revolutionary figure in the central bank's 100-year history, says Time.

At the National Economists Club Annual Dinner, Bernanke discussed the Fed's major decisions during his tenure. In doing so, Time says he outlined three innovations he instituted that have forever changed the world's most powerful central bank.



These begin with unprecedented communication and transparency policies.

Before Bernanke, central bankers discussed the idea of openness and even recognized the benefits of transparency, but it was Bernanke who actually moved to open up the Fed to the public, Time explains.

“I began my time as Chairman with the goal of increasing the transparency of the Federal Reserve, and of monetary policy in particular,” Bernanke told the audience.

But “responding to the financial crisis and its aftermath” and “supporting our economy's recovery from the deepest recession since the Great Depression soon became the Federal Reserve's main focus” he noted.

Bernanke took communication beyond mere interviews and press conferences. He introduced the world to the concept of the Fed's forward guidance. Central bankers wanted to lower long-term interest rates, and they decided one way to do it was to communicate the future path of short-term interest rates.

Originally, the Fed offered date-specific targets for when short-term rates could rise, but eventually shifted to “state-contingent guidance,” which involved using unemployment and inflation rates as targets, Business Insider explained.

But that alone was not enough to get the job done. Under Bernanke, central bankers developed unconventional economic tools now known as quantitative easing, or Large Scale Asset Purchases, as Bernanke calls the programs.

Bernanke explained that forward guidance impacted long-term interest rates “primarily by influencing investors' expectations of future short-term interest rates,” but LSAPs reduced long-term rates because, as the Fed's purchases reduced supply, values moved higher, saysBusiness Insider.

“As both forward rate guidance and LSAPs affect longer-term interest rates, the use of these tools allows monetary policy to be effective even when short-term interest rates are close to zero,” Bernanke explained.

He said the economy has made significant progress, but still has a way to go.

“The FOMC remains committed to maintaining highly accommodative policies for as long as they are needed. Communication about policy is likely to remain a central element of the Federal Reserve's efforts to achieve its policy goals,” said Bernanke.

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