KRUGMAN: I think Bernanke just revealed what people complained about most during his time at the Fed
REUTERS/Jonathan Ernst
It's interesting and a bit surprising. And according to Nobel Prize winner Paul Krugman, it may reveal what people complained most about during Bernanke's time at the Fed.
Economists, traders, and even mom-and-pop investors around the world study every word coming from the Federal Reserve very carefully for clues on the direction of monetary policy.
Currently, this obsession is focused on the Fed's takes on unemployment and inflation.
This is actually why it's fascinating that Bernanke spends so little time on either of these things. Here's Nobel Prize winner Paul Krugman's take on Bernanke's post:
Ben Bernanke's Brookings blog begins! And the subject of the first post is a defense of the Fed against the charge that it has been keeping interest rates "artificially low" and hurting savers ... What I find most interesting about Bernanke's first blog post - which is, as I said, clear and completely correct - is that he chose that topic. What that's telling us, I think, is what the people he talked to as Fed chair complained about most: not the failure to hit the inflation target, not the persistence of high unemployment, but disappointing returns for rentiers.
Since the financial crisis, the Fed has been very aggressive in its monetary policy, keeping short-term interest rates near-zero. This has been an effort to stimulate growth and stoke inflation.
But low interest rates also mean low returns for securities like bonds, which make up huge portions of the retirement accounts of older Americans.
"I was concerned about those seniors as well," Bernanke wrote. "But if the goal was for retirees to enjoy sustainably higher real returns, then the Fed's raising interest rates prematurely would have been exactly the wrong thing to do."
Here's more context from Bernanke:
...In the weak (but recovering) economy of the past few years, all indications are that the equilibrium real interest rate has been exceptionally low, probably negative. A premature increase in interest rates engineered by the Fed would therefore have likely led after a short time to an economic slowdown and, consequently, lower returns on capital investments. The slowing economy in turn would have forced the Fed to capitulate and reduce market interest rates again....
So, yes we'd love to offer savers higher returns on their savings. But it does no one any good if that means torpedoing the economic recovery.
Read Bernanke's whole blog post here.
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