NEW YORK — Former Federal Reserve chairman Ben Bernanke believes that higher interest rates will come and should be welcomed when they do.
“The question, really, is will the returns in the economy rise in a way that will allow the Fed to let interest rates rise,” he said [Monday] during remarks to the National Retail Federation at the Jacob K. Javits Center in a one-on-one discussion with Stephen Sadove, the retired chairman and chief executive of Saks Inc. and immediate past chairman of NRF. “There’s room for encouragement in that we’re seeing a stronger economy and stronger returns.”
He said he expected any elevation of rates to be conducted “in an appropriately cautious way” by his successor at the Fed, Janet Yellen, and the rest of the Fed’s Board of Governors.
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Clearly enjoying his year out of the spotlight as the most powerful banker in the U.S., he noted, “When interest rates start to rise, that’s going to be good news because it just means that the economy is stronger, can sustain it, can get back to a more normal position and that available returns are higher enough that interest rates can move up along with them.”
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Although impressed with recent improvement in economic conditions, including declines in unemployment and the price of oil, he said the near-zero level of interest rates has been because of persistent weakness in the economy that dates back to the financial crisis of the late 2000s and has lingered since.
The U.S. economy is currently the best it’s looked since before the crisis, he said, although he is concerned by economic challenges in Europe and Russia. Speaking of Europe, he said, “I don’t think by itself it can derail the U.S. economy.”
When Sadove asked about stagnation in wage levels even as the economy added 3 million positions in 2014, Bernanke defended the quality of jobs that have been created.
“You wouldn’t know it from the newspapers, but if you look at the recovery in jobs over the last five years, it has been, most of it, full-time jobs and decent-paying jobs,” he said. “It has not been a hamburger-flipper recovery. It’s been a much broader recovery than that.”
A student of the Great Depression, Bernanke was steadfast in his belief that an aggressive approach to monetary and fiscal policy was necessary to keep the 2009 crisis from mushrooming into a full-blown depression.
In the Thirties, he noted, one-third of banks failed. “The Fed didn’t do enough to stop that,” he said. “The Fed was too passive on monetary policy in the Thirties and we were determined to be very aggressive.”
While global markets were more closely linked in the more recent financial crisis, he said the Great Depression was also a global phenomenon and noted that the only country to suffer more than the U.S. was Germany. “That’s how Hitler came to power,” he observed.
He said that he understood the “blowback” and “anger” regarding government bailouts. “We thought we had to do that to prevent the system from collapsing,” Bernanke noted, pointing out that the nature of the actions taken made it more incumbent upon the Fed to be transparent in its actions, “to explain what we were doing and why we’re doing it.”
He remained critical of what he perceived as the premature shift to austerity from stimulus, as well as Congressional battles, such as the sequester, which he believes slowed down the economy. He termed the debt-limit battles “a total fiasco.”
Nominated to the Fed by former president George W. Bush in 2002 after chairing Princeton University’s economics department, Bernanke interspersed his discussion of current economic conditions with historical anecdotes, such as the resistance of Sir Montagu Norman, governor of the Bank of England in the first half of the twentieth century, to the kind of transparency Bernanke supported at the Fed. “He spoke to Parliament once and thought it was a big imposition on his time,” said the retired Fed executive.
He offered a fairly enthusiastic endorsement of the Dodd-Frank Act, saying it had made surviving banks stronger and provided a framework for the “unwinding of a fairly large financial firm. We didn’t have any tools during the Lehman weekend,” he said of the events of September 2008 leading to the largest bankruptcy in U.S. history and the deep recession that followed.
As for his retirement, he noted that he enjoyed opening up a newspaper, reading of an imminent crisis and observing, “Hey, that looks like a serious problem. I hope somebody’s doing something about it.”
He had a harder time identifying elements of the job he missed before finally thinking of one. “You don’t have to worry about parking when you’re a senior government official,” he said.