Federal Reserve Chairman Ben S. Bernanke said a willingness to resist political encroachment has been a key strength of the Fed during its first century as the U.S. central bank.
“One value that strikes me as having been at least as important as any other has been the Federal Reserve’s willingness, during its finest hours, to stand up to political pressure and make tough but necessary decisions,” Bernanke said today in Washington at a celebration of the 100th anniversary of the Fed. He didn’t discuss the outlook for monetary policy or the near-term prospects for the U.S. economy.
Bernanke gave brief introductory and closing remarks at an event at the Fed commemorating the Federal Reserve Act, the legislation that created the central bank. The act was signed into law by President Woodrow Wilson on Dec. 23, 1913.
The fight against inflation under Alan Greenspan and Paul Volcker, two of Bernanke’s predecessors, was “critical for the nation’s longer-term prosperity, and it required perseverance in the face of heavy criticism,” he said.
Bernanke’s remarks provide a window into his view of his legacy as chairman. His term as central bank chief expires January 31, 2014, and Janet Yellen, currently Fed vice chairman, is poised to succeed him pending a confirmation vote in the Senate that may take place this week.
Bernanke, 60, has led the Fed since 2006, steering the central bank through the longest and deepest recession since the Great Depression.
“As an institution, the Federal Reserve must continue to be willing to make tough decisions, based on objective, empirical analysis and without regard to political pressure,” he said.
Bernanke has faced political heat during his tenure while orchestrating the most aggressive easing in the Fed’s history. He pumped up the central bank’s balance sheet to $3.99 trillion from $869 billion in August 2007 and has held the main interest rate close to zero since December 2008.
As the financial crisis spread in 2008 beyond the banking system to financial companies and securities markets, Bernanke created mechanisms to lend to U.S. government bond brokers, buy the commercial paper of U.S. corporations and banks and finance the securitized loans to students, car buyers, small businesses and credit card borrowers. The Fed also rescued Bear Stearns Cos. and insurer American International Group Inc.
In January of 2010, Bernanke was confirmed to a second term with a vote of 70-30, the narrowest confirmation for any Fed chief in history.
The financial crisis of 2008 was “analogous to the panics that central banks have faced for centuries” and the Fed “found ways to carry out its traditional central bank functions in this environment,” Bernanke said today.
The Fed faces the continued challenge of explaining and defending its actions to the public, he said. Its ability to respond to crisis “depends on the public’s understanding and acceptance of our actions.”
“Of course, we will continue to talk to economists and market participants, but that is not enough,” he said. “Ultimately, the legitimacy of our policies rests on the understanding and support of the broader American public, whose interests we are working to serve.”