WASHINGTON–Former Federal Reserve Chairman Ben Bernanke, who headed the central bank during the 2008 financial crisis, is now warning that the United States is headed for a situation similar to that of the 1970s, when Americans were losing their jobs but still facing higher prices at the grocery store and at the pump.
“Even under the benign scenario, we should have a slowing economy,” Bernanke told the New York Times in an interview in conjunction with his new book, “21st Century Monetary Policy: The Federal Reserve From the Great Inflation to Covid-19,” which is scheduled to publish today. “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.”
While some have predicted a recession is inevitable, Bernanke told the Times he remains hopeful a recession can be avoided. He further told the publication he believes the Fed’s credibility with the public is going to be crucial to its ability to fight inflation, and it is something he is deeply worried about given how polarized the nation appears to be.
In addition, he remains concerned that supply chain problems continue for all types of goods — even his own. “Given supply-chain disruptions, this book took six months to go from final manuscript to appearing in the store,” he said in the interview.
A ‘Mistake’
But Bernanke also believes backing away from a 2% inflation target would be a mistake, and that current Fed Chair Jay Powell should make it clear that the Fed’s inflation target remains unchanged and then do whatever it takes to bring inflation back to that level.
“In everyday life, we judge the credibility of promises more by the reputations of the promise-makers than by the exact words they use,” the Times quoted Bernanke as stating in his book. “The same principle applies to the central bank.”
Bernanke also told the Times he is concerned about rising housing prices, saying he doesn’t believe a decline in prices would lead to the same problems the U.S. had when he was Fed chair.
“That’s something that needs to be watched,” he said, but unlike in 2008, “the mortgages that are being lent to buy these houses are generally much higher quality than the subprime mortgages of 15 years ago.”
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