WASHINGTON – 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. On Thursday night, they shared their observations.
Here’s a look at the key events of their tenures:
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.
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.
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.
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 signalled she wants to go further, in part to answer critics who complain that the Fed remains too secretive and unaccountable to Congress.