Former Fed Chairman Ben Bernanke said Monday that he thinks the Fed will be successful in containing inflation.
“I don’t want to give you really sharp forecasts, but I do think the Fed will bring inflation down over the next couple of years,” Bernanke said during a discussion at the Brookings Institution.
The former Fed chair said he didn’t know how quickly inflation will come back down. “It will depend on circumstances partly out of the Fed’s control and partly on decisions that they make as policymakers,” he said.
The Fed will be helped by “contained inflation expectations” — which means the public doesn’t think the high inflation over the past year will continue indefinitely, Bernanke said.
In addition, the Powell Fed seems to have the support from the Biden White House and both parties in Congress, he said.
Fed Chairman Jerome Powell “has worked really hard to mend relations” with Congress, and lawmakers seem to be supporting the Fed’s inflation-fighting plans, Bernanke said.
That wasn’t the case in the late 1970s, when Congress was pushing for pro-employment policies despite the high inflation.
Another difference from the high inflation era is that former Fed chair Arthur Burns didn’t think that the Fed was an effective tool in fighting inflation, Bernanke said.
In contrast, today’s Fed has “30-plus years of low inflation, political support, and a leadership that is willing to say the Fed must take the lead in reducing inflation,” Bernanke said.
The former Fed chairman said that the unemployment rate was likely to rise as a result of the Powell Fed’s actions.
But he said the chances of a Volcker-era recession, with 10% unemployment, were remote.
“I am confident, barring some incredibly large new shock, that we’re not anywhere near a Volcker 1981-1982-type situation,” he said.
The yield of the 10-year Treasury note
has fallen below 3% in recent days as worries have grown about a global recession.