A New Era at the Fed

The resignation of Ben Bernanke from the Federal Reserve of the United States (better known as “the Fed”) begins a phase of that institution very different from the one in place since the financial crisis began in the summer of 2007. The main feature that differentiates the period beginning under Chair Janet Yellen will undoubtedly be the gradual withdrawal of the exceptional decisions on monetary stimulus taken in the context of the management of the most serious and complex crisis since the Great Depression. But this new era will also be defined by the review of the proper role of central banks, and even their objectives, largely as a result of actions taken by the Fed, which have been followed by the other central banks in economies most affected by the crisis.

Ben Bernanke is a Republican academic, but he made decisions without the ideological prejudice that his political party continues to exhibit on the policies around the necessary stimulus adopted in that country to avoid falling into situations too close to those of the 1930s. His having studied in detail the period — indecision and errors that the authorities, including the Fed, committed in the management of the Great Depression — has undoubtedly been a significant advantage. The fact that he was appointed by George W. Bush hasn’t hurt in view of the fact that under his rule, the Fed has adopted decisions considered heterodox by not a few politicians and economists.

But he acted correctly. And the best proof of this is the recovery of the growth rate of the U.S. economy, especially the reduction of the unemployment rate. Under his leadership, the institution has also reinforced its commitment to fight unemployment, to the point of ensuring the maintenance of official interest rates at current non-existent levels until the unemployment rate falls to less than 6.5 percent. He has done this while committing to greater transparency in the institution’s activities, trying to convey information about its intentions and decisions, more so than any other president. Like other actions, anticipation or forward guidance of their decisions is now emulated by the other central banks.

These decisions, made in absolutely exceptional circumstances, will weigh more than some initial misdiagnoses in evaluating his term at the world’s most powerful central bank. His contribution to ensure a climate of understanding in the executive body of the institution cannot be overlooked, nor of course curb his commitment to maintain a close partnership with the person who will succeed him, fellow academic Janet Yellen. She will be the one to manage the delicate decision to withdraw the exceptional stimulus and ensure the return to a normal stage in the life of the central bank. It will not be an easy task: The budding economic recovery will not be exempt from further episodes of financial instability that will require not only the Fed, but also the entire community of central banks, to have the flexibility and ability necessary to combine the satisfaction of their traditional goals and to remain vigilant to the threats of various types of financial crises.