Tags: Neil Irwin | Federal Reserve | Ben Bernanke | Chairman

Author Neil Irwin: Expect Continuity at the Fed After Bernanke's Departure

By    |   Wednesday, 19 Jun 2013 09:27 AM

The expected departure of Ben Bernanke as chairman of the Federal Reserve won't bring significant changes to the direction of the central bank, according to author Neil Irwin.

"There's every reason to expect continuity," Irwin told Newsmax TV in an exclusive interview.

He cited Janet Yellen, the Fed's vice chair of the board of governors as a strong contender.

Watch our exclusive video. Story continues below.



"Whoever it is … it's hard to imagine [President Barack Obama] is looking for an abrupt change of pace or a sharp turn," he said.

"It will be somebody who basically continues the Bernanke strategy of quantitative easing and all the things they're doing to try and get the economy growing faster."

The end of Bernanke's time at the Fed should come as no surprise, said Irwin, author of "The Alchemists: Three Central Bankers and a World on Fire."

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"A lot of people he's close to said he's tired," Irwin said. "It's been a long eight years. He's ready to go back to Princeton or [write] a book or whatever he may choose to do. His term is up Jan. 31. The president has a big decision in the next few months."

Irwin added that the Fed will face a significant challenge when it comes to unwinding its "huge" balance sheet.

"What the Fed has done with all this money printing is created an extra $3 trillion on their balance sheet that used to be only $800 billion," he said.

"That's $2 trillion in … created money that's out there in the economy. Could we be laying the seeds of the next crisis by fueling [a] run-up in asset prices? Can they know when to flip the switch, when to turn it off, and then have the technical ability to do it?

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"They always can raise interest rates. They can always buy or sell the bonds they earlier bought. The question is will they have the right judgment? And that's going to be a big challenge most likely for the next Fed [chairman]. When is that moment? The Fed's been buying $85 billion a month in new money they're pumping out into the economy," he said.

"The question is when are they going to start to taper that down to $70 billion or $65 billion, whatever the number might end up being? Will they do that in September or December or next year?"

Irwin said that markets are overreacting to what's going on.

"The fact that markets are swinging so much based on little hints on when that date might come is a sign of how weird things have gotten in the markets, how driven by the Federal Reserve they are right now," he said.

"That is worrisome. You want to see markets up because of a stronger U.S. economy, not because of a man behind the curtain tweaking how much they buy."

He also cited concern about the Fed's independence.

"You have these institutions run by these technocrats, run by these economists who get together in private meetings and fly overseas and hang out with each other a lot … making these decisions that involve trillions of dollars of taxpayer resources being deployed on your behalf, so it's worrisome," he said.

"If the alternative is Congress meddling in the money supply, that causes problems of its own."

He added that throughout history, when elected officials are in charge, they tend to want higher inflation.

"That's what happened in the 1970s in the U.S.," he said. "That's what happened in Germany in the 1920s. You have to be careful what you ask for. We want democracy, transparency, accountability, but … you don’t want the politicians being in charge of the money supply."

Editor’s Note: Put the World’s Top Financial Minds to Work for You


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The expected departure of Ben Bernanke as chairman of the Federal Reserve won't bring significant changes to the direction of the central bank, according to author Neil Irwin.
Neil Irwin,Federal Reserve,Ben Bernanke,Chairman
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2013-27-19
Wednesday, 19 Jun 2013 09:27 AM
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