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VOL. 40 | NO. 15 | Friday, April 8, 2016

4 Fed leaders to share thoughts on central bank's influence

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WASHINGTON (AP) — Their words move markets. Their plans stir speculation. Their tenures spark debate.

Arguably no one holds more sway over the global economy and financial markets than the chairman of the Federal Reserve. And on Thursday evening, all four living Fed leaders, past and present, will gather for a public conversation to take stock of the outsize role each has played.

The four — Janet Yellen, the current Fed chair, and her three immediate predecessors, Ben Bernanke, Alan Greenspan and Paul Volcker — will launch a speaker's program honoring Volcker at the International House in New York, a residential dormitory for foreign students. With the possible exception of Greenspan, who may take part by video link, all will gather on site.

The program, called "When the Federal Reserve Speaks, the World Listens," will be guided by Fareed Zakaria of CNN.

Together, the tenures of the four participants cover more than one-third of the Fed's 102-year history. Their leadership included the double-digit inflation of the 1970s, the global banking and financial market crises of the 1980s and 1990s and, beginning nearly a decade ago, the worst financial crisis and recession since the Great Depression.

Their conversation is bound to touch on many of the challenges they faced and how they addressed them.

Here's a look at key events of their tenures:

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PAUL VOLCKER

Volcker served as chairman from August 1979 to August 1987. He had been tapped by President Jimmy Carter to combat a crisis of stagflation — the toxic combination of double-digit inflation and weak job growth that gripped the U.S. economy after the oil shocks of the 1970s. Volcker, then head of the Fed's New York regional bank, told Carter he could fix it.

Fix it he did — by driving interest rates to heights not seen since the Civil War. Those soaring rates triggered two recessions. Yet Volcker succeeded in reducing inflation to acceptable levels — a feat his two immediate predecessors, Arthur Burns and G. William Miller, could not achieve.

"The challenge for Paul Volcker was to be strong and tough enough to do the job that needed to be done, and he was strong enough and tough enough," said Alan Blinder, an economics professor at Princeton and a former Fed vice chairman.

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ALAN GREENSPAN

Greenspan's leadership spanned August 1987 to January 2006 — 18 years and five months, a tenure that is second only to Willliam McChesney Martin's 18 years and 10 months.

Greenspan was first tapped by President Ronald Regan and then was re-nominated by Presidents George H.W. Bush, Bill Clinton and George W. Bush. He was dubbed the "maestro" in a glowing book about his Fed stewardship by Bob Woodward of the Washington Post.

Greenspan gained acclaim for his management of monetary policy to address the 1987 stock market crash, the mid-1990s Mexican peso crisis and the late 1990s Asian currency crisis. He pursued policies that helped produce a decade of economic expansion, the longest in U.S. history.

But Greenspan's reputation was severely tarnished after he left the Fed, once the housing boom collapsed with dire consequences that fed the 2008 financial crisis and the Great Recession of 2007-2009. Greenspan was blamed for, among other things, resisting tighter regulation that could have addressed abuses in home lending.

"Greenspan was expert in the fine-tuning of monetary policy that produced a record expansion, but his neglect of regulatory issues helped pave the way for the housing catastrophe," Blinder said.

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BEN BERNANKE

Bernanke served as chairman from February 2006 to February 2014, perhaps the most momentous period for the Fed in its more than 100-year history.

Bernanke, a longtime Princeton professor before entering government service, had been chairman of President George W. Bush's Council of Economic Advisers when Bush chose him to succeed Greenspan. Though he seemed more the shy academic than an operator suited to the rough-and-tumble of Washington, Bernanke proved a quick study once the financial crisis erupted in the fall of 2008 with the collapse of Lehman Brothers. The years he had spent studying the Fed's mistakes in responding to the Great Depression served him in good stead.

Under his leadership, the Fed invoked all its conventional tools, driving its key policy rate to a record low near zero. Then, once those measures were exhausted, Bernanke unleashed extraordinary measures, never tried before, to help a rescue a financial system that was verging on collapse.

Among other things, he launched a bond buying program to try to keep long-term borrowing rates extraordinary low. He also presided over numerous emergency lending programs for battered corners of the financial system. By most accounts, Bernanke's actions succeeded, though some critics complained that those very efforts risked laying the groundwork for future financial bubbles.

"Bernanke was viewed by Wall Street as an unassuming academic when he became chairman, but he had studied the Great Depression when the Fed did too little and he did not want to repeat those mistakes," said David Jones, the author of five books on the history of the Fed.

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JANET YELLEN

The first woman to head the Fed, Yellen was selected by President Barack Obama to succeed Bernanke in February 2014. In many ways, her toughest task will be to unwind all the Fed's extraordinary support measures while ensuring that higher rates don't tip the economy back into recession.

In December, the Fed raised its key short-term rate modestly from record lows but has since kept it unchanged. Yellen has stressed that she foresees a gradual and cautious approach to raising rates in which the Fed's policymaking will be "data-dependent."

Yellen also is pursuing a campaign, begun under her two predecessors, to make the Fed more transparent. Greenspan started the effort in 1994, when the Fed for the first time announced its decision to change its benchmark rate. Bernanke expanded the policy statements, doubled to four times a year the number of updates the Fed made to its economic forecasts and added a chairman's news conference after four of the Fed's eight meetings each year to explain its intentions.

Yellen has adopted all of Bernanke's actions. And she has signaled that she wants to go further, in part to answer critics who complain that the Fed remains too secretive and unaccountable to Congress.

And how will Yellen be judged?

"I think it's too early to really judge her based on what she has done so far," said Sung Won Sohn, an economics professor at California State University, Channel Islands. "Yellen is an excellent economist, but the role of Fed chairman has evolved so she will also need to be a savvy politician and a diplomat."

Donald Kohn, a Fed staff economist who rose to become vice chairman during a long career at the Fed, said that while the four leaders displayed differences in operating style, they shared some key traits.

"They are all really smart people, and they all have a sense of history about the Fed as an institution," Kohn said. "There was never any question in my mind that each of them saw what they were doing as trying to further the public interest by achieving the Fed's mandates on jobs and inflation."

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