Former Chairman of the Federal Reserve Ben Bernanke does not see a rosy picture ahead for the U.S. economy. Bernanke sees stagflation on the horizon, thinks the Fed took too long to deal with current inflation and sees America’s student debt problem as a bubble that is about to burst.
The comments came as Ben Bernanke has a new book coming out on Tuesday, “21st Century Monetary Policy: The Federal Reserve From the Great Inflation to Covid-19.” The book deals with the history of the Fed, how it evolved over the years to become the power behind the U.S. – and the world – economy, and speculates on its future. Taking a look at the bank’s policymaking over the past seventy years, specifically its response to the Covid crisis, Bernanke shows how changes in the economy have driven the Fed’s innovations. The book also deals with the return of inflation, cryptocurrencies, increased risks of financial instability, and threats to its independence.
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On the problem with inflation, in an interview with CNBC’s Andrew Ross Sorkin Ben Bernanke said, “The question is why did they delay that. … Why did they delay their response? I think in retrospect, yes, it was a mistake.” And Bernanke also thinks that the people at the Fed would agree with him on that: they waited too long to raise rates.
So, why did they wait so long? Ben Bernanke thinks that the Fed did not want to take measures that could disrupt the markets. “One of the reasons was that they wanted not to shock the market,” he said. “Jay Powell was on my board during the Taper Tantrum in 2013, which was a very unpleasant experience. He wanted to avoid that kind of thing by giving people as much warning as possible. And so that gradualism was one of several reasons why the Fed didn’t respond more quickly to the inflationary pressure in the middle of 2021.”
And that is not all. In an interview with the New York Times, Ben Bernanke painted a grim picture for the American economy in the near future. “Even under the benign scenario, we should have a slowing economy,” he said. “And inflation’s still too high but coming down. So there should be a period in the next year or two where growth is low, unemployment is at least up a little bit and inflation is still high…So you could call that stagflation.”
Ben Bernanke also said that he thinks it would be wrong to cancel all student debt. He feels that many of the holders of such debt will go on to be professionals who will earn enough money to pay off their debts over time.