Tags: Bernanke | Fed | policy | transparency

Bernanke Gives Valedictory Speech — Part II

By    |   Wednesday, 08 Jan 2014 06:48 AM

Outgoing Federal Reserve Chairman Ben Bernanke spoke to the annual meeting of the American Economic Association on Jan. 3 in Philadelphia and spoke at length on the theme of "The Federal Reserve: Looking Back, Looking Forward," in which he discussed the Fed's accomplishments and tasks remaining to be completed.

The part of the speech that most resembled a shaggy-dog tale that would challenge the attention of almost any audience but this one was Bernanke's detailed explication of every move the Fed has made since the 1970s in the name of improving the transparency and accountability of the central bank, dating back to the Volcker era, when the Fed adopted a framework for targeting inflation. Under Chairman Greenspan, the Federal Open Market Committee (FOMC) began to issue a statement after each meeting. Bernanke has used quarterly press conference and other means to communicate Fed policy.

One change Bernanke did not claim credit for where it might be deserved is that under his chairmanship, the FOMC has been run in a much more collegial fashion akin to an academic department, such as the economics department at Princeton that Bernanke once ran, rather than the imperial style of Bernanke's predecessors.

Still, while dissents are more common than they have historically been, FOMC members still seem reluctant to dissent. Often there is a lone dissent, even though it is well known from the speeches of members that several of them are displeased with the policy of quantitative easing as it drags on year by year, that the Fed's balance sheet continues to grow and even Bernanke acknowledged some doubt as to the continued efficacy of the program.

The stated purpose of increased transparency is to bolster public confidence that the Fed is a legitimate institution acting in the public interest. But what if transparency is just a fancy word for a relentless public relations spin campaign calculated to lay down a fog that is intended to discourage and even intimidate anyone who would raise honest questions as to whether the Fed should be empowered to take arbitrary, unauthorized actions on behalf of undisclosed clients.

It was the late Robert Weintraub, a student of Milton Friedman, who led the drafting of the Humphrey-Hawkins Act, which was intended to promote transparency in monetary policy by requiring the Fed to set explicit ranges for money growth in semi-annual congressional testimony. Weintraub contended that the best arrangement from the standpoint of transparency and accountability would be for the Treasury to control monetary policy directly rather than indirectly through the Fed. Then, if voters became disenchanted with policy, they would know exactly whom to hold accountable, the president, and could affect policy with their votes.

After taking a fresh look at the issue of independence, scholars could examine how transparent the process of formulating monetary policy really is and how to hold the agencies that make this policy more accountable for the results than being subjected to a dose of press criticism.

(Archived video can be found here; text of the speech can be found here.)

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Robert-Feinberg
Outgoing Federal Reserve Chairman Ben Bernanke spoke to the annual meeting of the American Economic Association on Jan. 3 in Philadelphia and spoke at length on the theme of "The Federal Reserve: Looking Back, Looking Forward."
Bernanke,Fed,policy,transparency
509
2014-48-08
Wednesday, 08 Jan 2014 06:48 AM
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