Former Fed Chairman Ben Bernanke said on Monday he believed the Fed would be successful in containing inflation.
“I don’t want to give you a really specific forecast, but I think the Fed will bring inflation down over the next two years,” Bernanke said in a discussion at the Brookings Institution.
The former Fed chairman said he didn’t know how quickly inflation would return. “It will depend on circumstances partly beyond the Fed’s control and partly on the decisions it makes as policymakers,” he said.
The Fed will be helped by “contained inflation expectations” — meaning the public doesn’t believe the high inflation of the past year will continue indefinitely, Bernanke said.
Additionally, Fed Powell appears to have the support of the Biden White House and both parties in Congress, he said.
Fed Chairman Jerome Powell “has worked very hard to mend the relationship” with Congress, and lawmakers appear to support the Fed’s inflation-fighting plans, Bernanke said.
This was not the case in the late 1970s, when Congress pushed for pro-jobs policies despite high inflation.
Another difference from the era of high inflation is that former Fed Chairman Arthur Burns didn’t think the Fed was an effective tool to fight inflation, Bernanke said.
By contrast, today’s Fed has “more than 30 years of low inflation, policy support, and leadership that’s willing to say the Fed needs to take the lead in bringing inflation down,” Bernanke said.
The former Fed chairman said the unemployment rate was likely to rise following Fed Powell’s actions.
But he said the chances of a Volcker-era recession, with 10% unemployment, were low.
“I’m confident, barring some incredibly big new shock, that we’re not anywhere near a 1981-82 Volcker-type situation,” he said.
The yield of the 10-year Treasury note TMUBMUSD10Y,
2,864%
fell below 3% in recent days as worries regarding a global recession grew.