After eight years at the helm of the Federal Reserve, Ben Bernanke stepped down, upon two consecutive terms, on Friday, January 31st. How will he be remembered?
For the U.S. economy, optimism, even if only mild, is the flavor of the day. After the enormous crisis of 2008 and a long period of soft recovery, the strongest growth in ten years occurred at the end of 2013 (the American GDP grew 4.1% during the third quarter and 3.2% during the fourth). The Fed did not miss the signals sent by the rise in consumption, amongst other things, and decided to continue its 'tapering', or reduction in its overall assistance to the economy, during its January 29th meeting, the last one lead by Bernanke.
He is therefore leaving on a positive note, after having driven the Fed through some of the most tumultuous economic times in U.S. history.
In the wake of the collapse of New York-based Lehman Brothers, the hatred of Main Street for Wall Street made Ben Bernanke the rare person capable of making a banks bailout acceptable to the public opinion, which did not hold the banking system on its good side. Indeed, 'Helicopter Ben', as he was nicknamed for his capital injections into the economy, almost passed for a 'man of the people': originally from rural South Carolina, he had been a career academic before moving to Washington, D.C., and did not have much of a network in the financial world.
His college professor career, during which he studied in depth the Great Depression, also enabled him to be the man of the moment when the subprime crisis happened. He quickly understood the consequences of a possible dismantling of the banking system, and took steps to prevent that.
In addition to being remembered for his historical decisions to keep interest rates at 0% (or close to that) for a record period of time, Ben Bernanke will also mark history for his large scale bond purchases programs, the 'Quantitative Easing', in order to stimulate credit, consumption and thereby growth -what he managed to do without creating inflation. He was also a supporter of a more transparent Federal Reserve than before, and implemented quarterly press conferences to translate his vision into action.
Bernanke will also be remembered for his style, much different from that of his predecessors. His pragmatic and down to earth approach enabled him to lead by consensus, as opposed to imposing his vision. His calm was a much needed contrast to the market panic of 2008 and 2009, and provided investors with an anchor.
We can hold against Bernanke that he did not realize the scale of the real estate bubble which exploded in 2007, and he did not fully appraise the depth of the recession that followed. His role was also controverted during the rescues of Merrill Lynch (acquired by Bank of America (NYSE:BAC)) and AIG (NYSE:AIG) (bailed out by the U.S. government).
Nevertheless, his tenure at the Fed deserves an A- for his salvation of the economy. Even if it is too early to know the long-term consequences of his monetary policy, he steps down with a more than satisfying outcome: credit is still tight and unemployment remains high by historical standards, but the real estate market has stabilized and businesses are investing extensively again. It is now up to his successor, Janet Yellen, to understand well the recent drops in the unemployment rate, by closely studying the labor force, in order to keep leading the Fed well. As for Helicopter Ben, he will stay a neo-Keynesian economist, but this time for the Brookings Institution, a leading D.C. think thank he just joined.
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