Bernanke: Fed’s ‘credibility’ means we are ‘almost certain’ we are not in danger of repeating 1970s inflation

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Ben Bernanke, who served as Federal Reserve Chairman from 2006 to 2016, published an op-ed in the New York Times on Tuesday arguing that the United States is “almost certainly not” in danger of the economic problems that have plagued the nation since 1966. Until 1981. This assumption was based on the “credibility of the Fed”.

The article, titled “Inflation Won’t Bring the 1970s Back,” asserted that while “it is true that there are some similarities” between the 1970s and today, “there are fundamental differences as well.”

Regarding these differences, Bernanke said that in the 1960s and 1970s, the Federal Reserve faced stiff political resistance to raising interest rates.

“First, although inflation was not very popular in the 1960s and 1970s, because (understandably) today, at that time, any tendency on the part of the Federal Reserve to fight inflation by raising interest rates, which could also lead to Slowing the economy and increasing unemployment met stiff political resistance.”

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  In this May 10, 2013 file photo, Federal Reserve Chairman Ben Bernanke waves goodbye after speaking during a banking conference in Chicago.  (AP Photo/Paul Beaty, file)

In this May 10, 2013 file photo, Federal Reserve Chairman Ben Bernanke waves goodbye after speaking during a banking conference in Chicago. (AP Photo/Paul Beaty, file)

“In contrast, the efforts of the current Federal Reserve Chairman, Jerome Powell, and his colleagues to bring down inflation have significant support from both the White House and Congress, at least for now,” he said.

In June 2021, Powell confirmed that Inflation will be temporary. At the time, the Fed kept policy on hold and said that a temporary period of above-trend inflation likely wouldn’t result in the Fed raising interest rates before 2023.

Bernanke also wrote that today, Fed officials see themselves as playing a greater role in lowering inflation than they did in the 1970s. “Besides the Federal Reserve’s greater independence, the main difference from the 1960s and 1970s is that the Fed’s views on both the sources of inflation and its responsibility to control the pace of price increases have changed significantly,” he wrote.

Today, the Federal Reserve is raising interest rates and selling its balance sheet, which it does Adding $120 billion a month during the height of the epidemic.

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Federal Reserve Chairman Ben Bernanke's press conference appears on television at a trading center on the floor of the New York Stock Exchange, Wednesday, December 18, 2013 (AP Photo/Richard Drew)

Federal Reserve Chairman Ben Bernanke’s press conference appears on television at a trading center on the floor of the New York Stock Exchange, Wednesday, December 18, 2013 (AP Photo/Richard Drew)

Bernanke noted that inflation only ended in the early 1980s when Federal Reserve Chairman Paul Volcker raised interest rates to 20 per cent. “Inflation gained momentum over the decade, ending only with the shock of the Federal Reserve under Paul Volcker in the early 1980s, leading to a deep recession,” he wrote.

The former Federal Reserve chairman claimed, without evidence, that “the lessons of hyperinflation in America, by both the Federal Reserve and political leaders, make a repeat of that experience highly unlikely,” then admitted that the state of the economy had been misdiagnosed by the Fed in 2021.

“After the delay caused by the misdiagnosis of the economy in 2021, the Fed accordingly shifted to tighten monetary policy, ending its pandemic-era bond purchases, and announcing plans to reduce its holdings of securities and raise short-term interest rates,” he said. .

Powell is encouraged by business leaders and some media for it ‘Be big’ on inflation.

Current and former Fed Chairs Jerome Powell (left) and Ben Bernanke respectively

Current and former Fed Chairs Jerome Powell (left) and Ben Bernanke respectively

Bernanke concluded that it would be the Fed’s credibility that would prevent a return to the 1970s.

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“The Fed’s greater independence in policy, its willingness to take responsibility for inflation and its track record of keeping inflation low for nearly four decades after major inflation make it more credible regarding inflation today than its counterpart in the 1960s and 1970s,” he said. “The Fed’s credibility will help ensure that significant inflation does not recur, and Mr. Powell and his colleagues will give a high priority to keeping that credibility intact.”

Powell and Treasury Secretary Janet Yellen incorrectly said inflation would be ‘temporary’ in 2021, a claim The latter recently admitted it was a mistake.