The three wise chairmen: Notes from Fed chairs past and presentThe three wise chairmen: Notes from Fed chairs past and presentLuis B. TorresTorres

​Recently I had the opportunity to attend the American Economic Association’s (AEA) annual meeting in Atlanta​​​. The meeting brings together economists from around the world, representing different fields and sectors, to discuss monetary policy, technology, globalization, and more.

One discussion panel I attended was the Federal Reserve Chairs Joint Interview. The panel included current Federal Reserve Chairman Jerome Powell and past chairmen Janet Yellen and Ben Bernanke—three important economic figures who played pivotal roles during the Great Recession and afterward. Here are some takeaways from the discussion.

The panelists had no serious concerns about current U.S. economic conditions, nor did they see any red flags pointing to high inflation due to wage increases. This year, they are expecting slower U.S. and world economies, but they also expect the U.S. to break its record for economic expansion this summer. They noted conflicting signals between data and the financial markets, possibly due to financial markets pricing downside risk ahead of future results because of policy uncertainty generated by the federal government. As Bernanke likes to say, there is no “Wile E. Coyote” moment in the short-run horizon for the U.S. economy. The current Federal Reserve chairman went on to say that monetary policy formulation is quite flexible and is data-dependent.

With respect to nontraditional monetary policy tools, they see both forward guidance and quantitative easing as being successful in overcoming the Great Recession. Neither led to hyperinflation or asset bubbles. Also, the Federal Reserve’s ability to become more flexible in making changes based on the underlying data were and are important. In addition, transparency and communication improvements to the public played an important role in overcoming the financial crisis.

All three economists agreed that the Federal Reserve's monetary policy decisions are best made without political influence. Janet Yellen and Ben Bernanke added that comments made against the Federal Reserve and its present chairman by the current administration undermine confidence in the Federal Reserve to achieve its goals. When asked directly if he would resign if asked by the president, Chairman Powell answered with a simple and convincing "no."

They argued that the financial system post-Great Recession is more resilient to future crises because of banks being more capitalized, the implementation of stress tests on the banking system, supervisory innovation leading to the public's understanding of what is happening, and better risk management. But there is more work to be done in the area of macroprudential​ tools and possibly creating a financial stability board that looks at asset prices and caps loans to risky markets. There is a lack of tools in the U.S. compared with other countries. Canada, for example, has a systematic institution that supervises asset prices and has emergency lending tools.

The panelists also discussed the relationship between high inflation and low unemployment (known as the “Phillips Curve”) and how this relationship is currently weak, meaning wage increases would not cause inflationary pressures as labor markets heat up.

Regarding balance sheet normalization, they agree that the balance shrinkage by the Federal Reserve has a small effect on financial markets. Powell said they currently don’t believe balance sheet normalization has an effect on financial markets, but if it did they would change policy formulation.

​​​Dr. Torres will share more insights from the AEA conference in upcoming blog posts.


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