A Dispirited Fed Chairman Emerges From Jackson Hole

"[M]ost of the economic policies that support robust economic growth in the long run are outside the province of the central bank." — Fed Chairman Ben Bernanke.

A thoroughly chastened and discouraged Fed Chairman Ben Bernanke gave his annual speech last Friday at the Fed conference in Jackson Hole, Wyoming. After reading this year's speech, and then re-reading last year's speech, I found his tone gloomy and dispirited. This is a far cry from the younger, more confident Ben Bernanke who in 2002 told Milton Friedman at his 90th birthday party that Milton was right about the Fed causing the Great Depression and "we won't do it again." Of course Milton was right about the Fed but for the wrong reasons, which could be part of our problem.

If you have followed Bernanke's speeches over the years, at least since the Crash of '08, you will get a flavor of the man. Like all Chairman his tone has to be sober, reservedly confident, and in control. Unlike The Oracle, Chairman Alan Greenspan, who gave little clarity or direction at all, Dr. Bernanke has tried to be more "transparent" in communicating Fed policies. It is my impression that while he has tried to exude confidence, he is now clearly discouraged. As well he should, since none of the Fed's "suite of tools" have worked as intended and almost every forecast the Fed has given since the Crash has been wrong.

This malaise seems to have infected the leaders of other central banks as well as they convened with the Chairman last weekend. Perhaps there is something in the air at Jackson Hole.

Dr. Bernanke is always quick to remind us that the actions of the Fed were responsible for saving the world and averting disaster at the critical moment during the "Panic." It got him on the cover of Time. The only problem is that he has no way to prove that. The few papers I have seen on the topic (Blinder& Zandi; Brave and Genay; Gagnon, Raskin, Remache & Sack) have not been very convincing. Of course our own David Stockman has plenty to say about that topic (here and here).

If we even give him that point for the sake of argument, then nothing since then has worked. It's got to be discouraging for him.

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