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Fed Chairmen and the Randomness of Reputations

"Maestro": Former Federal Reserve Chairman Greenspan
"Maestro": Former Federal Reserve Chairman GreenspanPhotograph by Stephen Voss/Redux

Fighting inflation, encouraging employment, and protecting the soundness of the banking system—this pretty much sums up the core mission of the U.S. Federal Reserve Bank. How about delivering double-digit stock market returns? Well, not exactly, but correlating the Dow Jones industrial average’s performance with the tenures of various Fed chairmen, going back to the early 20th century, yields some pretty interesting results.

While making stock market investors rich isn’t part of the Fed’s mission statement, market sentiment and big swings in household wealth sometimes influence the central bank’s thinking and monetary stance. When times are flush, Fed chairs often bask in reflected glory, regardless of their individual contribution—and when an overheated market collapses into a heaving mass of pain, it often falls to the next chair to clean up the mess.