Ben Bernanke, Chairman of the Federal Reserve, has become one of the most famous men in America over the last year. Rising from relative obscurity as the Princeton professor who became Alan Greenspan’s successor, he has appeared to handle both the financial crisis and oversight from Congress with the equanimity of a seasoned pro.
This quality was on display again last week as he sat before the House Budget Committee for two hours, being both grilled and praised by its members. While Chairman John Spratt (D-SC) and Ranking Member Paul Ryan (R-WI) asked concise questions about policy, Rep. Niki Tsongas (D-Mass) had the sharpest questions for Chairman Bernanke.
However, the real meat of the meeting was about the current state of the economy, and the greatest concern of the committee members was the burgeoning fiscal deficit. Chairman Bernanke spent a great deal of time emphasizing that although the deficit is a very worrying long term problem, in the short run, we must continue to take whatever steps we can to end the recession and re-enter our long term growth pattern. He also made clear that as Chairman of the Federal Reserve, although he can express opinions on the budget deficit and growing national debt, his institution is responsible for monetary policy. Short of monetizing the debt (printing dollars to buy the debt, thus creating inflation and reducing the real value of the debt), he has no control over fiscal policy. Without being overly accusatory, he put that job squarely on Congress’s shoulders, letting the Budget Committee know that their actions would determine the long-term growth of the national debt, not his.
Although he delivered some sobering news, Bernanke stayed positive while remaining reserved about the timeframe for a recovery. Although he emphasized that the labor market may continue to suffer for many months, he believed that recovery would be in full swing by the end of this year. He also stated firmly that both Troubled Asset Relief Program and the American Recovery and Reinvestment Act played a great deal in creating financial stability and halting the downturn.
The question of inflation was also of great concern to the House Budget Committee. After Bernanke issued a flat out denial of any intention of monetizing the debt, the committee was still concerned that natural economic pressures might create intense inflation as the economy regains steam. However, Bernanke reiterated that the Fed was committed to price stability and would use open market operations as needed to preserve it.
Chairman Bernanke did not announce any dramatic shifts in policy, though his statement regarding price stability was of the most interest to me. He went to great lengths to point out that stability means neither inflation nor deflation, a statement intended to reassure a jittery public and world about fears of inflation. However, as many economists believe, a small amount of inflation is preferable to none, in order to raise the cost of holding money (as opposed to investing it) and to build a buffer zone against deflation. But, Bernanke’s words appeared to oppose this, so it will be interesting to see what policies the Fed pursues.
— Myles MacDonald, Advocacy Intern and Claremont McKenna College Student