With then-President George W. Bush on hand for the swearing-in, Federal Reserve Chairman Ben Bernanke took office in February 2006. At that time, they had no idea that the proverbial wheels were about to come off the U.S. economy. The result was a global financial crisis unparalleled since the Great Depression.
During his comments that day at the Fed's stately headquarters building in Washington, Bush predicted that Bernanke would be "an outstanding chairman," and noted that the previous Fed chairman, Alan Greenspan, had achieved "rock star status."
Few knew then that the crisis would raise serious questions about Greenspan's stewardship of the central bank in the years before the meltdown. The man who had been the subject of a Bob Woodward book titled, "Maestro: Greenspan's Fed and the American Boom," would see his reputation become a casualty amid the economic carnage of the 2007-2008 crisis.
Jury out on Bernanke
Now, Bernanke's leaving; Janet Yellen will be sworn in as the next Fed chief on Monday. Will history take another dramatic turn and damage the current, generally positive view of Bernanke's eight years of service? In short, it's much too early to say.
"We don't know what his legacy will be until we see whether or not Janet Yellen and other (Federal Reserve policymakers) can successfully unwind the Fed's balance sheet," says William Ford, former president of the Federal Reserve Bank of Atlanta. He adds that either an outburst of inflation or a recession due to rising interest rates could tarnish Bernanke's reputation.
The larger the Fed's balance sheet, which was recently pegged at $4 trillion, "the more dangerous it is as a potential source of inflation, or -- when interest rates have to be pushed up -- a potential source of the next recession," notes Ford, the Weatherford Chair of Finance at Middle Tennessee State University.
For the moment, however, he says it appears Bernanke "did OK."
But economist Joel Naroff says Bernanke deserves some blame for ignoring warning signs leading up to the financial crisis. "He started off poorly, thinking the housing bubble was slowly deflating and that the financing issues would not greatly affect either housing or the economy," says Naroff, president of Naroff Economic Advisors.
A mixed report card
Breaking the Bernanke era into three separate parts, Naroff gives Bernanke a "D" for the early years and an "A" for the period during and after the crisis. Overall, Naroff gives Bernanke an "incomplete," since we don't yet know how it all will turn out.
Over the past week or so, volatility in emerging markets has been an unnerving hint of the potential unintended consequences of massive interventions by central banks around the world. Bernanke's last meeting on monetary policy this week included a decision to further wind down asset purchases, starting down the path of reversing the extraordinary measures taken in response to the crisis.
If real trouble flares up anew, the Fed is currently trapped by record-low interest rates. It has no room to reduce the benchmark federal funds rate. One of the most effective tools in the monetary policy toolbox is not available until rates begin to rise. An increase in rates is not expected until late next year.
Little comment from the man himself
Reporters have pressed Bernanke about how history might view him. He has generally resisted answering directly. "I'll be interested to see. I hope I live long enough to read the textbooks," was all he would say at a December news conference.
Now the job falls to Yellen to steer the ship through uncharted economic waters. "If Janet Yellen pulls it off, as I expect she will, then Ben Bernanke will get a lot of kudos for the policy," says Naroff.
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