Ben Bernanke’s 8-Year Fed Odyssey
Ben Bernanke assumed the chairmanship of the Federal Reserve on Feb. 1, 2006. He "came to the job with a refreshiong humility," Roger Lowenstein wrote in The New York Times in 2008. The new chairman wanted to be more of "a plain-speaking technocrat" and less "an oracle" like his predecessor, Alan Greenspan, Lowenstein wrote. Bernanke had served as a Fed governor since August 2002, but had little other experience on the global policy-making stage. Bernanke's tenure got off to a rocky start because of communication issues, and the brewing housing bubble was about to burst.
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Bernanke would eventually come under criticism for the Fed's failure to spot or prevent the subprime mortgage crisis that shook the economy as the housing bubble burst. He testified before Congress in March 2007 that "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained." The reality made that assessment seem naive and out of touch.
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Once the financial crisis hit, Bernanke played a key role in saving the financial system -- and the global economy -- from collapse. As an academic, Bernanke had become the foremost expert on the Great Depression. He put that background to use as the Fed tried to prevent another such depression, working creatively to prop up various markets.
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Bernanke also had to reassure worried markets that had frozen up during the crisis.
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Even after the worst of the financial crisis had passed, Bernanke's Fed was still faced with the challenge of high unemployment amid a weak economy. The Fed's key interest rates have been near zero since early 2009, leaving the Fed with little else it could do using conventional policy levers.
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Bernanke often sought to reassure markets that the Fed hadn't fired its last bullet and still had other options for stimulating the economy and labor market.
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With interest rates already near zero, the Fed under Bernanke has tried new ways to stimulate the economy, including three rounds of so-called quantitative easing, in which the bank buys bonds in an attempt to push rates lower and lift asset prices.
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The Fed's quantitative easing programs, which have ballooned the bank's balance sheet to $4 trillion, have been particular subjects of questioning, but Fed officials insist that the programs have helped.
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Bernanke and the Fed's extraordinary efforts at monetary easing have been the target of repeated criticism, both from politicians and some in the markets.
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Historically low interest rates and quantitative easing asset purchases have prompted criticism that the Fed's monetary policies have disproportionately benefitted wealthy owners of stocks and real estate. Bernanke defended those policies and their stated purpose of improving the job market and economic outlook for all Americans.
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Testifying before Congress in February 2012, Bernanke warned of a potential crisis point looming at the end of the year: "Under current law, on January 1, 2013, there's going to be a massive fiscal cliff of large spending cuts and tax increases," he said, popularizing a phrase that be used millions of times over the following months.
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While critics have warned that the Fed's easy money policies would spur a return to spiraling inflation, Fed officials remain concerned that inflation remains well below their 2 percent long-term target.
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Bernanke had signaled in May 2013 that the Fed would start pulling back on its $85 billion in monthly bond purchases in the not-too-distant future. The beginning of that long awaited "taper" was finally announced on Dec. 18.
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Bernanke's tenure will end after two terms. President Obama in June 2013 said in an interview that the Fed chairman has "done an outstanding job" but noted that, “He’s already stayed a lot longer than he wanted or he was supposed to.”
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