Former Federal Reserve Chairman Ben Bernanke said the nation relies too much on the central bank and that slow productivity growth is hurting economic growth.
Instead of investors and lawmakers expecting the nation’s central bank to continually save the economy, he said it’s time for other policymakers in the government to help. Bernanke added that additional capital investment is needed to spur further growth.
"Compare the United States with Europe, with Japan, and other industrial countries, we have been making more progress," Bernanke told CNBC.
"I'm not saying things are great, I don't mean to say that at all, but monetary policy can only do two things: it can keep inflation low and stable, and can help the economy come back from a recession. And both of those things are happening,” he said.
He defended the Fed’s current policy. "The Fed has been using easy money because the economy has needed a lot of support," he argued. "If you raised rates too early and kill the economy, that doesn't help you," he said.
"A better policy would be a better mix of monetary, fiscal, and other policies. The fact that the Fed is the only game in town means the Fed has to do too much," he said.
"If inflation is so very, very low that it's close to deflation, the risk is that ordinary interest rates will be low all the time. ... What happens where there's a recession, there's nowhere to cut," he said.
Higher rates could “kill U.S. exports with a very strong dollar,” he said.
Bernanke said the “mediocre” September employment report is a “negative” for the U.S. central bank’s plan to begin hiking rates in 2015, as a strengthening labor market was the key conditions for the Fed to be confident inflation was moving higher. Bernanke says ‘not obvious’ economy can handle interest rates at 1% .
Bernanke said the Fed’s $4.5 trillion balance sheet was not “a big issue.”
Separately, in a piece for The Wall Street Journal,
Bernanke argues that his policies led to a better job market without stoking inflation.
Bernanke claims that Fed programs were a “critical” advantage for the U.S. over Europe.
“Europe’s failure to employ monetary and fiscal policy aggressively after the financial crisis is a big reason that eurozone output is today about 0.8% below its precrisis peak. In contrast, the output of the U.S. economy is 8.9% above the earlier peak—an enormous difference in performance,” writes Bernanke.
“In November 2010, when the Fed undertook its second round of quantitative easing, German Finance Minister Wolfgang Schäuble reportedly called the action ‘clueless.’ At the time, the unemployment rates in Europe and the U.S. were 10.2% and 9.4%, respectively. Today the U.S. jobless rate is close to 5%, while the European rate has risen to 10.9%,” he wrote.
Bernanke is promoting his new 600-page memoir, "The Courage to Act: A Memoir of a Crisis and Its Aftermath," which is scheduled to be published Monday.
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