Fed chiefs joke about all that power

There was convivial joshing about all that world-shaking power in their hands. A disagreement or two about economic policy. And one resounding sneeze.

The four Federal Reserve chiefs who have guided the U.S. economy for the past 37 years – through double-digit inflation, prolonged prosperity, near Depression and halting recovery — gathered Thursday to put a human face on an institution that often appears both stately and inscrutable.

In an extraordinary event that blended the central bank’s past and present, former chairmen Paul Volcker, Alan Greenspan and Ben Bernanke joined current Chair Janet Yellen in a public forum for the first time to kick off Volcker’s distinguished speaker program at International House in Manhattan. Volcker is chairman of the board of the nonprofit, which trains aspiring global leaders.

There was a caveat: Greenspan, 90, appeared via satellite on a large video screen from Washington, his familiar craggy and stolid face peering from behind oversized glasses and hovering to the right of the other participants on stage.

Each led the Fed during starkly different periods. Volcker, 88, took the central  bank’s reins in 1979 with inflation at double digits and rising. Greenspan, who took office in 1987, presided over a generally prosperous era of low inflation, booming growth and the long bull market of the 1990s. Bernanke, faced with the 2008 financial crisis and Great Recession, spearheaded a series of unprecedented steps to rescue the economy and head off depression. And Yellen is now tasked with removing those extraordinary stimulus measures amid a halting recovery.

Perhaps there’s no more enduring image from those four decades than Greenspan’s imperial visage, unflappable demeanor and reputation for keeping the economy on an even keel with an often indecipherable utterance.

Noting that he was once called “God on a good day,” the moderator, CNN host Fareed Zakaria Zakaria, asked plainly: “Did that go to your head?”

“No, but it sure enough embarrassed me,” Greenspan said to a burst of laughter from the packed audience. He added, “I very much appreciated that.”

Zakaria also pointed out Greenspan’s proclivity for being “deliberately incomprehensible.”

The former Fed chief attributed that tendency to the uncertainty of economic forecasts. “Our ability to forecast is significantly limited,” he said. The challenge, he added, is “how to keep the context of what you say in the context of what you know,” improvising yet another Greenspanian head-scratcher.

Zakaria noted that Volcker’s power, by contrast, became a lightning rod for criticism when he and his Fed colleagues raised interest rates sharply in the early 1980s to lower soaring inflation, a strategy that worked but sparked two recessions.

“I thought they were cheerleading,” Volcker joked of the public reaction. “People were unhappy with the (economic) malaise and inflation. They gave us some rope to hang ourselves. They were going to be patient.”

Revealingly, he added, “Did I worry? I worried all the time,” citing a rug he wore down at the Fed’s Washington offices.

During their tenures, all the Fed chiefs were notoriously sober in speeches and congressional testimony, cognizant that their seemingly offhand words could move markets and rattle the economy. This was a rare chance to make light of the ponderous.

Zakaria pointedly asked Bernanke, 62, about the risks of unwinding the more than $3 trillion in bond purchases he engineered following the 2008 financial crisis to push down long-term interest rates and spur the economy. Some feared interest rates could spike and the recovery could falter when the Fed eventually unloads them.

“Fortunately, I don’t have to do it,” Bernanke said with a smile.

“He bequeathed that to me,” Yellen, 69, added with a laugh.

Growing more serious, Bernanke said he didn’t expect the eventual shrinkage of the Fed’s balance sheet to pose a problem because both he and Yellen have said the Fed won’t sell the assets, but instead let them roll off the books when they mature.

Bernanke, who was appointed by George W. Bush, said he wasn’t troubled that Republicans in Congress slammed the bond purchases over the years, predicting they would foment inflation and asset bubbles.

“We could do what we needed as long as we marshaled broad support,” he said.“ I certainly didn’t take the job for adulation.” He added that the much-feared doomsday scenarios have not occurred.

There were some good-natured disagreements. Both Bernanke and Yellen said the burden of economic stimulus shouldn’t all be placed on the Fed, and Congress should ramp up spending to stimulate more growth. Greenspan, however, said the economy’s main obstacle is low productivity growth. “Spending money only increases the (federal) debt,” he said.

Volcker added, “I agree with everybody!”

There was some serious discussion. Zakaria asked Yellen if the Fed made a mistake by raising its near-zero benchmark interest rate in December for the first time in nine years. Since then, the Fed has held the rate steady because of the weak global economy and turbulent financial markets.

Yellen defended the move. Noting that unemployment is at a near-normal 5%, she said, “I said at the time and continue to feel the economy has made substantial progress toward our goal.” Her remark was punctuated by a loud sneeze from Greenspan, whose sneezes, it was joked, once moved markets.

Sometimes, though, a sneeze is just a sneeze.