Bernanke's Legacy

A successful exit. This must be the obsession of Ben Bernanke, the chairman of the U.S. Federal Reserve, to whom all eyes of the financial world turned to yesterday. The exit is that of the ultra-accommodating monetary policy. In order to support the economy and the markets, interest rates were kept at zero for months while billions of dollars in assets were redeemed each month. The Fed chief had continued to mark the field yesterday. But this exit is also looming over Bernanke’s head as his second term expires in seven months. If the Fed chief has done an “outstanding job,” as Obama acknowledged,” he’s already stayed a lot longer than he wanted or he was supposed to.” This was an astonishing statement, but it already raises doubts as to Bernanke’s legacy.

Yet the results of Bernanke’s two predecessors, who were once adored by Wall Street, have now faded. Paul Volcker ended the era of inflation, but this was done at the cost of a severe recession in the 1980s. Alan Greenspan boosted growth, yet the price that was paid for this was the burst of the credit bubble in 2007. So what footprint does Bernanke leave? History will probably forget the “outstanding job” he did after the bankruptcy of the Lehman Brothers, especially if he misses his famous exit. So this task has never seemed so dangerous, especially with such gigantic issues at stake. In terms of the markets, they will have to learn to live without their monthly infusions of cash. On the other hand, the U.S. economy will probably see a parallel rise in the dollar. As a result, the White House will no longer be able to count on the Fed to cheaply finance deficits. Beyond the legacy of Bernanke, it is the credibility of this most important of central banks that will be called into question in the coming months. This credibility is its main asset.