There's been plenty of talk about Jon Hilsenrath's behind-the-scenes look at the Fed's most recent board meeting. This much detail on a Fed debate is something of a rarity, suggesting enough discontent among participants that people felt it important to share the discussion with the broader public. The whole piece is useful, but I wanted to draw attention to one piece of oft-repeated conventional wisdom about Chairman Ben Bernanke's tenure:
One thing is clear: Mr. Bernanke, though striving for consensus, is determined to avoid mistakes of past central bankers that created devastating bouts of deflation. As a Princeton professor in the 1990s, Mr. Bernanke lectured Japanese officials for being too timid about combating deflation. And in now-famous remarks he delivered as a Fed governor at a 90th birthday celebration for Milton Friedman in 2002, Mr. Bernanke promised the Fed would never allow a repeat of the deflation of the 1930s.
This, however, is not clear at all -- while his past record is, often literally, an open book, his actions today don't match his past prescriptions, and though his colleagues at the Fed appreciate the collegiality of his approach to policy-making, the lack of clarity surrounding the Fed's decisions continues to undermine public confidence in the institution. As economist Tim Duy argues,
Perhaps it is time for Bernanke to stake out a public position. How exactly does he view the current economic situation in light of his work on Japan? For many of us, that work points to a much more aggressive policy stance. Is this the direction Bernanke wants to take? If so, why is he dragging his heels? If not, then what is different? This is the conversation I want to see him have with the public, on the record. And the sooner, the better.
Indeed, reappointing Bernanke looks to be among the worst mistakes of President Obama's first year in office; ironically, it came because he valued immediate benefits over long-term returns, the very opposite of the president's typical decision-making calculus.
-- Tim Fernholz
