Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Bernanke Says Fed Too Slow on Inflation and Faces Stagflation

Published 05/17/2022, 12:16 AM
Updated 05/17/2022, 12:16 AM
© Reuters.

© Reuters.

(Bloomberg) -- Former Federal Reserve Chairman Ben Bernanke said the current Fed leaders were too slow to react to surging U.S. inflation and as a result face a period of stagflation, or a combination of stagnant growth and high inflation.

“The forward guidance, I think overall, on the margin, slowed the response of the Fed to the inflation problem,” Bernanke said in an interview broadcast on CNBC on Monday. “I think, in retrospect, yes, it was a mistake and I think they agree it was a mistake.”

Powell and his colleagues chose to respond gradually to surging inflation because they didn’t want to shock the markets with a repeat of the so-called taper tantrum in 2013, when Treasury yields surged suddenly under his leadership, Bernanke said. At the same time, he warned the outcome of such a slow response was going to be a poor economic performance.

“Even under the benign scenario, we should have a slowing economy,” Bernanke told the New York Times separately. “And inflation’s still too high but coming down. 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,” he predicted. “So you could call that stagflation.”

It’s highly unusual for a former Fed chair to criticize a successor; recent chairs Alan Greenspan and Janet Yellen have seemed to go out of their way to avoid criticism. Bernanke’s comments were notable as an exception, though also carefully worded to not be especially harsh.

Bernanke made his comments as part of media appearances before the publication of a new book, “21st Century Monetary Policy.”

Prior to its more hawkish pivot, the Federal Open Market Committee had pledged not to raise rates until the economy was at a level consistent with full employment. 

The Fed increased rates by a half point earlier this month, the largest single hike since 2000, and Powell said similar moves were on the table for the next two meetings. Officials also announced they would start shrinking their $9 trillion balance sheet from June 1 at a pace that will step up quickly to $95 billion a month.

EXPLAINER: Why War and Its Oil Impact Revive Stagflation Fears: QuickTake

©2022 Bloomberg L.P.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.