Fed delay on raising interest rates ‘was a mistake,’Bernanke says

Former Federal Reserve[1] Chairman Ben Bernanke[2] said that the central bank waited too long in addressing inflation[3].

The question is why did they delay that? … Why did they delay their response? I think in retrospect, yes, it was a mistake, he told[4] CNBC Monday. And I think they agree it was a mistake.

Consumer prices have risen at an 8.3% pace in the 12 months ending in April, near the fastest in four decades. In order to drive down the inflation, the Fed raised its interest rate target by a quarter of a percentage point in March and half a percentage point this month.

SENATE CONFIRMS POWELL FOR SECOND TERM AT FED AMID HIGHEST INFLATION IN 40 YEARS[5]

Bernanke, who helmed the Fed from 2006 to 2014, during the worst financial crisis since the Great Depression, said that one of the reasons he thinks the Fed, now led by Chairman Jerome Powell, waited to begin tightening was because Federal Open Market Committee members had concerns about shocking the market.

Jay Powell was on my board during the Taper Tantrum in 2013, which was a very unpleasant experience, Bernanke said, referring to an instance in which his remarks about tightening monetary policy caused an extreme negative market reaction. He wanted to avoid that kind of thing by giving people as much warning as possible. And so that gradualism was one of several reasons why the Fed didnt respond more quickly to the inflationary pressure in the middle of 2021.

Bernanke said the United States learned much from the Great Inflation of the 1970s and pointed out that there is now public support for the Feds plan to hike interest rates to combat inflation, even though those hikes have put a damper on the markets.

Bernankes remarks come a day before the release of his new book[6], 21st Century Monetary Policy: The Federal Reserve From the Great Inflation to Covid-19, which he began working on at the start of the pandemic.

Some economists fear the Feds scramble to hike interest rates belatedly could cause the economy to enter a recession.

Bernanke has suggested[7] that the country might be in for a period of stagflation, according to the New York Times.

Stagflation, a portmanteau of stagnation and inflation, is when prices are increasing while economic growth and the labor market are struggling. The U.S. suffered stagflation in the 1970s, a situation that many economists leading up to the episode did not think was possible because they believed that higher inflation would be traded off for lower unemployment.

CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER[8]

Even under the benign scenario, we should have a slowing economy, Bernanke said of the countrys current situation. And inflations still too high but coming down. So there should be a period in the next year or two where growth is low, unemployment is at least up a little bit and inflation is still high, he said.

So you could call that stagflation, the former Fed chief added.

References

  1. ^ Federal Reserve (www.washingtonexaminer.com)
  2. ^ Ben Bernanke (www.washingtonexaminer.com)
  3. ^ inflation (www.washingtonexaminer.com)
  4. ^ told (www.cnbc.com)
  5. ^ SENATE CONFIRMS POWELL FOR SECOND TERM AT FED AMID HIGHEST INFLATION IN 40 YEARS (www.washingtonexaminer.com)
  6. ^ new book (www.amazon.com)
  7. ^ has suggested (www.nytimes.com)
  8. ^ CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER (www.washingtonexaminer.com)

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