WASHINGTON – 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 Thursday evening at an event to launch a speaker’s program honouring 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 labour 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.