Ryan Avent is right: I was disappointed to see him offer praise to Bernanke, but he agrees that so far the Fed has been “weak”:
IT SEEMS that a few people were surprised, and perhaps disappointed, to see me offer some praise to Ben Bernanke for changes announced in the most recent Federal Open Market Committee statement. Don’t get me wrong. I would like the Fed to do more, and I would have preferred it to have done more some time ago. I think we can chalk quite a lot of the weakness of the American recovery up to insufficiently stimulative monetary policy—a hugely costly policy error.
He then indicates that his “praise” was to be interpreted as an “incentive” – “let´s give Bernanke encouragement” – after all we recognize how difficult his job is and, who knows, maybe he´ll feel encouraged to become more “forceful”.
Every once in a while, however, it’s worth taking a break from haranguing policy officials when they show that they’re learning. And every once in a while, it’s important to remember the context in which Fed officials are making policy.
Mr Bernanke has a difficult job. He’s tasked with managing the world’s primary reserve currency and its largest economy through one of the modern world’s most treacherous economic periods. It’s a position within which one can’t afford to behave too incautiously.
I think Ryan is too “lenient” when he gives Bernanke “great credit” for undertaking “housekeeping chores”, even in the midst of the worse economic performance of the post war era. His predecessor may have been “obscure in his messaging”, but there´s no denying (although there are quite a few “revisionists”) that he was a success.
It is to Mr Bernanke’s great credit that, recognising the huge importance of the Fed in the world economy, he took the chairmanship with an eye toward shepherding its institutions toward greater transparency and accountability. His predecessor ran the Fed in near-dictatorial fashion, and sought to be as obscure in his messaging as possible. That’s a dangerous way to run one of the most powerful positions in the world, and Mr Bernanke was eager to change the way the Fed operated.
And I don´t see any “pivoting” by the Fed. It´s still set in avoiding deflation but is terrified of inflation, even when that´s a “non issue”. Bernanke has even satisfied his long standing “dream” and enshrined the 2% inflation target.
And while time may prove me wrong, it does seem that the Fed has pivoted in a very useful direction over the past year. As of early last year, it seemed that the Fed’s policy framework would only allow additional expansionary measures when deflation appeared to loom as a threat. It took several quarters of slowing growth to get the Fed to QE2, and it failed to continue purchases after its scheduled end in the absence of an ongoing disinflationary threat.