Bernanke says ‘not obvious’ economy can handle interest rates at 1%
Published: Oct 5, 2015 12:37 p.m. ET
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By
GREG
ROBB
SENIOR ECONOMICS REPORTER
Getty Images
Former Federal Reserve Chairman Ben Bernanke’s appearances are tied to the release of his new book “The Courage to Act.”
Former Fed Chairman Ben Bernanke said Monday that he was not sure the economy could handle four quarter-point rate hikes.
Some economists and Fed officials argue that the U.S. central bank should hike rates now to anticipate inflation.
That argument assumes the Fed can raise rates 100 basis points and it wouldn’t hurt anything, Bernanke said. ”That is not obvious, I don’t think everybody would agree to that,” he added in an interview with CNBC.
Higher rates could “kill U.S. exports with a very strong dollar,” he said.
Bernanke said the “mediocre” September employment report is a “negative” for the U.S. central bank’s plan to begin hiking rates in 2015, as a strengthening labor market was the key conditions for the Fed to be confident inflation was moving higher.
Bernanke said he would not second-guess Fed Chairwoman Janet Yellen, saying only that his successor faced “tough” calls. He said the two do not speak on the phone.
Bernanke said interest rates at zero was not “radically easy” policy stance as some have suggested. He said he did not take seriously arguments that zero rates was creating an uncertain environment was holding down business investment
Bernanke defended his policies, noting the steady decline in the unemployment rate in recent years.
He said that the slower overall pace of gross domestic product since the Great Recession was due to a downturn in productivity and other issues outside the purview of monetary policy.
“I am not saying things are great, I don’t mean to say that at all,” he said.,
Rather, to boost productivity and capital investment, the Fed “needs help from other policymakers,” he said.
Bernanke is doing a round of interviews tied to the Tuesday release of his memoir “The Courage to Act.”
He penned an op-ed in Monday’s Wall Street Journal, but distanced himself on CNBC from the headline: “How the Fed Saved the Economy.”
A better headline would have been the Fed can’t act alone, he said.
Bernanke said that the current zero level of interest rate is not an “emergency rate.”
The former Fed chairman said the argument the U.S. central bank should raise rates so it would have room to later cut them “doesn’t make any sense.”
“If you raised rates too early and kill the economy, that doesn’t help you,” he said.
Bernanke said the Fed’s $4.5 trillion balance sheet was not “a big issue.”
When the time comes, the U.S. central bank will just let assets run off passively over time, he said.
In the interview, Bernanke defended his assertion in his book and an interview with USA Today that more bank executives should have gone to jail in the wake of the crisis.
“What I was talking about is that we do know that…many big banks, the Department of Justice assessed billions and billions of dollars against the firms for bad behavior of various kinds,” he said.
“If there are bad actors, you should go after them” individually, he said.