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WSJ: Bernanke Gets Mixed Grades as Fed Tenure Ends

Outgoing Chairman of the Federal Reserve Ben Bernanke and incoming Chair Janet Yellen

By Elliot Jager | Wednesday, 18 December 2013 04:05 AM EST

The Federal Reserve's inability to achieve a robust recovery raises questions about what more — or different — outgoing chairman Ben Bernanke could have done, according to a Wall Street Journal assessment of his tenure.

Bernanke's eight-year term ends Jan. 31. If confirmed this week by the Senate, Vice Chairwoman Janet Yellen will replace Bernanke at the helm.

Coming into the chairmanship in 2006, Bernanke was disinclined to pursue interventionist policies. As a student of economic history he was, nevertheless, "passionate" about the failure of the Fed to intervene during the Great Depression of the 1930s, according to New York University Economics Professor Mark Gertler.

Confronted with the worst economic downturn — which began roughly between the summer of 2007 and the beginning of 2008 — since the Depression, Bernanke came to pursue the interventionist policies that have characterized his stewardship.

He pumped cash into the financial system, kept interest rates as low as possible and oversaw the purchase of $3 trillion in bonds. These "controversial" policies "averted an economic calamity," according to the Journal.

The central bank's cheap-credit policies were intended to help create jobs. Unemployment currently stands at 7 percent, up from 4.6 percent when the crisis began, but down from 9 percent in 2011.

By way of comparison, the rate of unemployment in the eurozone, where central banks are less-interventionist, stands at 12.1 percent, according to the Journal.

The dollar's value against foreign currencies has held steady roughly since 2007, under Bernanke.

His policies have seen inflation averaging 2 percent since the crisis. Aggregate government spending, excluding entitlements, has fallen 6.1 percent.

Still, economists are debating why the financial system has not bounced back more vigorously.

Some blame the aftershocks of the housing bubble and say earlier Fed interest policies contributed to the crisis.

Bernanke has argued that in Britain, Sweden, and Australia, where more restrictive interest-rate policies were in place, housing booms were far more volatile.

Others believe the failure can't be attributed to Fed policy or to any single factor but to chronic and multifaceted labor and productivity conditions.

Under Bernanke, the central bank has tried to guide overall fiscal policy which is made by the president and Congress. He met regularly with lawmakers and White House officials urging "less fiscal restraint in the short run alongside more deficit reduction in the long run," according to the Journal.

His advice was mostly disregarded.

Bernanke's policies avoided an economic meltdown, but the Fed alone was not in a position to grow the economy despite undertaking extraordinary interventionist measures, the Journal concluded.

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