Why Ron Paul is not Taken Seriously

Advocates of U.S. Presidential candidate Ron Paul, seem befuddled that his economic proposals do not receive more support and consideration. I am unsure if their criticisms of the U.S. Federal Reserve System (the Fed) are objections to the existence of paper money, central banks, or to the specific operation of the Fed. Monetary policy for an increasingly interconnected world is complex. It is reasonable that most people do not understand it. But it can be understood. Let me try to address a few issues.

Money is anything that is generally accepted to serve as a medium of exchange (i.e., you can buy things with it), a store of value (i.e., you use it to save purchasing power for use at a later time), and a unit of account (i.e., it is used to measure relative prices). Stated more simply, money facilitates commerce. Without money that is widely accepted, easy to carry and exchange, and difficult to counterfeit, economic transactions become much more difficult. Without money, people must rely on barter for exchanges of goods and services. For example, a yoga teacher would trade yoga instruction for everything she wants to buy. Paper money, such as Federal Reserve Notes, has been used since the 7th century because it conveniently serves the functions of money. Although it has no intrinsic value, paper money has historically been one of the most widely used forms of money. Bank deposits, such as those created under the fractional reserve banking systems that are common throughout the developed world, are another form of money of similar importance in modern times.

The reason why politicians other than Ron Paul are not advocating the elimination of the Federal Reserve System is because there is a broad consensus among politicians, economists, and the leaders of finance and business that central banks, such as the Fed, provide a necessary function for a developed society. Prior to the creation of the Federal Reserve System in 1913, the U.S. monetary and banking systems were chaotic and their instabilities impeded commerce and economic growth. Because central banks oversee the money supply and banking system, every country with its own currency needs a central bank. They all function essentially in the same way as the Fed.

The primary benefit of a central bank, such as the U.S. Federal Reserve System, is that it promotes a healthy and stable banking system capable of supporting economic growth. It also ensures that society has an appropriate quantity of reliable money to facilitate commerce.

The simplest refutation of the desirability of returning the U.S. to a gold standard is that the money supply would not typically increase unless the U.S. acquired more gold. A benefit of this is that it would prevent excessive inflation. But it would almost certainly lead to devastating deflation and it would make it nearly impossible for the U.S. to use monetary policy to reduce the duration and severity of economic downturns, such as the recent global recession.

Here is a simple example. As a country’s population increases and its economy grows, it needs a larger money supply. If there are a million people earning $1 per day, the economy needs $1 million per day to pay these workers. If the population doubles to 2 million, but the money supply has not increased because the country has not acquired more gold, then the existing $1 million must be sufficient to pay 2 million people. So people earn fifty cents per day instead of a dollar. With these lower labor costs, prices of goods and services fall, too. An overall reduction in the price level, which economists call deflation, might seem desirable. But it is devastating to an economy. It causes a dramatic reduction in purchases of newly produced goods and services. (Why buy something today if you know it will be cheaper next week, next month, or next year?) Deflation increases unemployment as businesses lay off workers because there is reduced demand for their products as consumers postpone purchases until the future (when they will be cheaper).

Developed modern economies have a money supply that is primarily composed of currency and bank deposits and is overseen by a central bank. This allows the money supply to be adjusted to the changing needs of society. The money supply can be easily altered to accommodate changes in population and economic growth. And because central banks influence the amount of money created by private commercial banks in the form of loans, monetary policy is a primary instrument of macroeconomic policy. In prosperous times, central banks fight inflation by encouraging banks to lend less money to the public and thereby reducing overall spending on newly produced goods and services. When the economy is sluggish, central banks promote economic growth and reduce unemployment by encouraging banks to lend more money and thus increase the demand for newly produced goods and services. (As sales increase, businesses rehire workers they laid off or hire new ones.) Mainstream society wants governments to take action to promote economic prosperity and reduce the negative impacts of macroeconomic declines. (See "The Economic Role of Government" for elaboration.)

Ron Paul seems to have considerable fears about hyperinflation. A few economies (with currencies not backed by gold and a central bank similar to the Fed) have suffered hyperinflation. But this does not imply that such a fate in inevitable. An examination of the U.S. inflation rates since 1956 provides no evidence that Fed policies have caused excessive increases in the price level.

http://econperspectives.blogspot.com/2008/10/us-inflation-rates-since-1956.html

Indeed, hyperinflation tends to occur in places where government leaders have considerably more influence over the central bank (as Paul seems to want). The relative independence of the Fed from the whims of current politicians is a strength of the U.S. monetary system, not a shortcoming as Paul suggests.

Ron Paul’s opinions of the Fed are viewed by mainstream society the same way it views people who claim the earth is flat, that the sun orbits the earth, that man never went to the moon, that the best way to cure all illness is to drain blood from the body, that there is no such thing as evolution, that the earth is only 6,000 years old, or that President Barack Obama was not born in Hawaii. There is substantial evidence to refute all of those beliefs. But for whatever reason, some people prefer conspiracy theories. There is a lot to like about Ron Paul’s candidacy. But Paul is not taken seriously by mainstream society because many of the policies he advocates are simplistic and seem to be based on wishful thinking rather than reality.

Here are a few resources that may help your understanding of monetary policy:

(1) The Fed Today, a 14-minute video that provides a good introduction to the U.S. Federal Reserve System.
http://www.youtube.com/watch?v=jFnH9MCdpLo

(2) Economic Perspectives, my blog about macroeconomic policy
http://econperspectives.blogspot.com/2009/03/monetary-policy.html

(3) Wikipedia – decent summaries that may provide answers to many of your questions. The article on the gold standard has a section on its advantages and disadvantages.
http://en.wikipedia.org/wiki/Central_bank
http://en.wikipedia.org/wiki/Federal_Reserve
http://en.wikipedia.org/wiki/Gold_standard
http://en.wikipedia.org/wiki/Banknote

The Fed is not as Independent as Designers Planned It to Be

The Federal Reserve System was designed to be independent of political influence. The seven members of the Board of Governors serve 14-year terms. Thus, appointees can be in office longer than the U.S. President who appoints them. And the terms are staggered so that one term expires every two years, minimizing the influence of one President on the makeup of the Board. However, resignations and retirements can give a President opportunities to appoint a majority of the Board. As the article below explains, Barack Obama will soon make his fifth appointment and thus will have reshaped the composition of the U.S. central bank that guides monetary policy, controls the money supply, and oversees the banking system.

In the April 29, 2010 article "Obama to name Yellen as Fed's No. 2," Associated Press writer Darlene Superville reports:

WASHINGTON – Putting a bigger stamp on the Federal Reserve, President Barack Obama is set to name Janet Yellen as vice chairwoman of the central bank and fill two other vacancies on the board, which has enormous power over Americans' pocketbooks.

The nominations are subject to Senate approval. If the Senate confirms all three nominees, Obama will have appointed five of the seven members of the Federal Reserve Board.

Obama's moves come as the Fed, whose decisions influence economic activity, employment and inflation, is facing political and economic challenges.

The Fed is steering the economy out of the worst recession since the 1930s, and legislation to overhaul the financial system would eliminate some of the Fed's authority while giving it new responsibilities. Some lawmakers think the Fed overstepped its authority by bailing out some big financial firms during the 2008 financial crisis.

Fed interest rate decisions affect the rates consumers pay on home mortgages and other consumer and business loans. On Wednesday, the Fed ended a two-day meeting by sticking to its pledge to hold rates at historic lows for an "extended period" to help energize the recovery.

Yellen is president of the Federal Reserve Bank of San Francisco. As vice chair, the second-highest ranking Fed official, her duties would include helping build support for policy positions staked out by Fed Chairman Ben Bernanke, who has begun a second term.

Obama also is expected to nominate Sarah Raskin and Peter Diamond to the Fed board. Raskin is the Maryland commissioner of financial regulation. Diamond is an economist at the Massachusetts Institute of Technology.

An official with advance knowledge of the moves spoke to The Associated Press on condition of anonymity because the announcement was pending.

Yellen was a top adviser to President Bill Clinton and is considered a dove on monetary policy. That means she would be expected to be more concerned about high unemployment, currently holding at 9.7 percent nationally, than about rising inflation.

She would succeed Donald Kohn, who plans to depart at the end of June. Kohn has been a member of the Fed board since 2002.

Yellen and Diamond, who is an authority on Social Security, pensions and taxation, are Ph.D. economists. With Kohn's departure, the Fed would have just one professional economist, Bernanke. Of its other current members, Daniel Tarullo was a Georgetown University law professor, Kevin Warsh brought Wall Street experience and Elizabeth Duke was a banker. Warsh and Duke were nominated by President George W. Bush.

Raskin, who served as counsel to the Senate Banking Committee, would expand the Fed's expertise over financial regulation. That would include consumer issues, which are important to Obama and Congress as they seek to impose tighter oversight on the financial industry.
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On the Net:
Federal Reserve: http://www.federalreserve.gov

Lax Oversight Caused Crisis, Bernanke Says

In the January 4, 2010 New York Times article "Lax Oversight Caused Crisis, Bernanke Says," Catherine Rampell reports that the Federal Reserve chairman blames regulatory failure for the economic decline of recent years:

ATLANTA — Regulatory failure, not low interest rates, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday.

Mr. Bernanke’s remarks, perhaps his strongest language yet assessing the roots of the financial crisis, came as he awaited confirmation for a second term as Fed chairman and as he sought greater regulatory authority from Congress.

“Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates,” Mr. Bernanke said in remarks to the American Economic Association.

Mr. Bernanke, addressing accusations that the Fed contributed to the financial crisis, argued in his speech that the interest rates set by the central bank from 2002 to 2006 were appropriately low. He was a member of the board of governors of the Federal Reserve system for most of that period.

“When historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment,” Mr. Bernanke said.

Some lawmakers and economists have argued that the Fed kept interest rates too low in the aftermath of the 2001 recession, making loans cheap and feeding reckless lending by banks.

“I strongly disapprove of some of the past deeds of the Federal Reserve while Ben Bernanke was a member and its chairman, and I lack confidence in what little planning for the future he has articulated,” Richard Shelby of Alabama, the Senate Banking Committee’s top-ranking Republican, said in December during a committee vote on Mr. Bernanke’s reconfirmation.

The Senate Banking Committee approved Mr. Bernanke’s renomination last month. He is expected to be reconfirmed by the full Senate before his current term expires on Jan. 31, despite some vocal opposition.

Even if confirmed, however, Mr. Bernanke is likely to face further political challenges over financial regulatory reform and the governance of the Fed.

The House passed a provision to audit the Fed as part of a larger financial reform package last month. Representative Ron Paul, Republican of Texas, has been carrying the banner for such an audit for decades.

The debate over what caused the financial crisis comes as the economy shows signs of recovery and as Congress considers a wide-ranging overhaul of financial regulation.

In a separate talk on Sunday at the conference, Donald L. Kohn, the Fed’s vice chairman, listed several measures the central bank was likely to take to shed the problematic assets it took from banks during the financial crisis. He said “the appropriate use and sequencing of these tools is under active discussion” by regulators.

But, as members of the rate-setting Federal Open Market Committee said last month, he noted that the fragile economic recovery and weak job market would “warrant exceptionally low” interest rates “for an extended period.”

Mr. Bernanke, in his talk, echoed his previous calls for Congress to grant the Fed greater oversight powers over the financial system, like the ability to help monitor and regulate against “systemic risk.”

The implication is that the Fed believes that regulation and supervision, rather than tighter monetary policies, should be used to address asset bubbles in the future.

Mr. Bernanke has pointed to the Fed’s extraordinary efforts to stem the crisis, including the creation of new lending vehicles to banks and a reduction of bank-to-bank interest rates to virtually zero, as evidence that the Fed has a firm grasp of what the economy needs. The Fed’s handling of the crisis has been widely praised by economists.

The Treasury and other government agencies already have supervisory power over parts of the financial system, but so, too, does the Federal Reserve.

In his talk on Sunday, Mr. Bernanke acknowledged as much, rattling off a list of regulatory efforts the bank made to address nontraditional mortgages and poor underwriting practices.

But, he said, “these efforts came too late or were insufficient to stop the decline in underwriting standards and effectively constrain the housing bubble.”

Fed holds rates at record low to fuel recovery

In the December 16, 2009 article "Fed holds rates at record low to fuel recovery," Associated Press economics writer Jeannine Aversa reports the Federal Reserve System will maintain extremely low interest rates to encourage banks to lend more funds in an effort to increase the aggregate demand for newly produced goods and services.

WASHINGTON – The Federal Reserve pledged Wednesday to hold interest rates at a record low to drive down double-digit unemployment and sustain the economic recovery.

The Fed noted that the economy is growing, however slowly. And turning more upbeat, it pointed to a slowing pace of layoffs.

Still, Fed Chairman Ben Bernanke and his colleagues gave no signal that they're considering raising rates anytime soon. They noted that consumer spending remains sluggish, the job market weak, wage growth slight and credit tight. Companies are still wary of hiring, they said.

Against that backdrop, the Fed kept its target range for its bank lending rate at zero to 0.25 percent, where it's stood since last December. And it repeated its pledge, first made in March, to keep rates at "exceptionally low levels" for an "extended period."

In response, commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent. That's its lowest point in decades.

Super-low interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They're especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit.

Michael Darda, chief economist at MKM Partners, predicted that rates would stay where they are for most of next year.

"We believe the Fed is essentially out of the picture until late 2010 or early 2011," Darda said. The Fed's "optimism was constrained by a long list of caveats," he added.

Noting the stabilized financial markets, the Fed said it expects to wind down several emergency lending programs when they are set to expire next year. That seemed to strike a confident note that the Fed thinks it can gradually lift supports it provided at the height of the financial crisis.

The central bank made no major changes to a program, set to expire in March, to help further drive down mortgage rates.

The Fed in on track to buy a total of $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac by the end of March. It has bought $845 billion so far. It's also on pace to buy $175 billion in debt from those groups under the same deadline. So far, the Fed has bought nearly $156 billion.

Its efforts to lower mortgage rates are paying off. Rates on 30-year loans averaged 4.81 percent, Freddie Mac reported last week. That's down from 5.47 percent last year.

The Fed said it has leeway to hold rates at super-low level because it expects that inflation will remain "subdued for some time."

Fed policymakers repeated their belief that slack in the economy — meaning plants operating below capacity and the weak employment market — will keep inflation under wraps.

A government report out Wednesday showed that inflation is in check despite a burst in energy prices. Energy prices, however, are already in retreat.

Bernanke, who's seeking a second term as Fed chief, has made clear his No. 1 task is sustaining the recovery. Last week, he and other Fed officials signaled they are in no rush to start raising rates.

At the same time, Bernanke has sought to assure skeptical lawmakers and investors that when the time is right, he's prepared to sop up all the money. Some worry that the Fed's cheap-money policies will stoke inflation.

Some encouraging signs for the economy have emerged lately. The economy finally returned to growth in the third quarter, after four straight losing quarters. And all signs suggest it picked up speed in the current final quarter of this year.

The nation's unemployment rate dipped to 10 percent in November, from 10.2 percent in October. And layoffs have slowed. Employers cut just 11,000 jobs last month, the best showing since the recession started two years ago.

Still, the Fed predicts unemployment will remain high because companies won't ramp up hiring until they feel confident the recovery will last.

Consumers did show a greater appetite to spend in October and November. But high unemployment and hard-to-get credit are likely to restrain shoppers during the rest of the holiday season and into next year.

Mort Zuckerman: Keep Congress Away From the Federal Reserve

Mort Zuckerman: Keep Congress Away From the Federal Reserve

The Bernanke Record

The December 4, 2009 Wall Street Journal editorial "The Bernanke Record" asks "Will he repeat the mistakes of his four years?"

Federal Reserve Chairman Ben Bernanke faces his Senate renomination hearing today, amid signs that the confirmation skids are greased. We nonetheless think someone should say that, as a matter of accountability for the financial crisis and looking at the hard monetary choices to come, the country needs a new Fed chief.

We say this not because of Mr. Bernanke's performance during the financial panic of 2008, for which he has been widely and often deservedly praised. Like others in the regulatory cockpit at the time, he had to make difficult choices with imperfect information and when the markets were shooting with real bullets.

He supplied ample liquidity when it was most needed last autumn, and he has certainly been willing to pull out every last page of the central banker playbook. If some of those decisions were mistakes, the conditions the Fed faced were extraordinary. Anyone at the helm would have made calls that in hindsight he'd regret.

The real problem is Mr. Bernanke's record before the panic, with its troubling implications for a second four years. When George W. Bush nominated the Princeton economist four years ago, we offered the backhanded compliment that at least he'd have to clean up the mess that the Alan Greenspan Fed had made. That mess turned out to be bigger than even we thought, but we also didn't know then how complicit Mr. Bernanke was in Mr. Greenspan's monetary decisions.

Now we do, thanks to the release of the Federal Open Market Committee transcripts from 2003. They show (see "Bernanke at the Creation," June 23, 2009) that Mr. Bernanke was the intellectual architect of the decision to keep monetary policy exceptionally easy for far too long as the economy grew rapidly from 2003-2005. He imagined a "deflation" that never occurred, ignored the asset bubbles in commodities and housing, dismissed concerns about dollar weakness, and in the process stoked the credit mania that led to the financial panic.

This, too, might be forgivable if Mr. Bernanke had made any attempt in recent months to acknowledge the Fed's role in the mania. Treasury Secretary Tim Geithner, Dallas Fed President Richard Fisher and others have conceded that monetary policy was too loose. How central banks can minimize, if not prevent, asset bubbles without inducing recessions would seem to be a subject for candid Fed debate.

But Mr. Bernanke and Vice Chairman Don Kohn have formed an intellectual moat around the Fed, blaming the credit bubble on the "global savings glut" that they themselves helped to create. They are the Edith Piafs of central banking, regretting nothing.

All of this bears directly on how the Fed will operate over the next four years. We are now in another period of extraordinary monetary ease. Mr. Bernanke is assuring the world that, this time, he knows how and when to start removing this stimulus, even as he also promises that the Fed will remain easy for months to come. The guideposts the Fed claims to follow on policy—the jobless rate, "resource utilization"—also remain the same. Price signals, especially the value of the dollar, count for much less in this Fed's decision-making.

Earlier this decade, the Fed had 20 years of sound-money history as a source of credibility. The world's investors were willing to give the Greenspan Fed the benefit of the doubt—too much doubt as it turned out. But now, after the mania and panic, investors are unlikely to show such forbearance. That's already clear in Asia, where the falling dollar is creating monetary distortions, and investors are bidding up assets and currencies on a bet that the dollar is in for further declines. Sooner rather than later, Mr. Bernanke will have to tighten money even if the U.S. jobless rate remains higher than everyone would like.

The Fed chairman has shown he knows how to ease money, and creatively so. But that is the easy part of his job. The hard part, the time when central bankers earn their fame, is when they have to take the money away. We see little in the chairman's policy history or guideposts to suggest he will be willing to endure the criticism that will come with tightening money amid a lackluster recovery, if that is what is required to protect the dollar or prevent an inflation outbreak.

The political irony today is that even as Mr. Bernanke is cruising toward confirmation, the Fed as an institution is under its most sustained political attack in two generations. The political class is especially riled about the Fed's forays into fiscal policy. While that is understandable given the last year, the response to this action should not be to put the Fed under even greater political control from Congress. That is the Argentinian solution.

The better response is to hold policy makers accountable for their actions, including chairmen of the Federal Reserve. At this monetary moment more than any since the late 1970s, the Fed needs a hard-money chairman with the courage and credibility to resist the temptation to escape from the consequences of the last bubble by floating another one.

Bernanke defends record during crisis

In the December 3, 2009 Reuters article "Bernanke defends record during crisis," Mark Felsenthal and Pedro da Costa report:

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke, making a case for a second term on Thursday, offered a forceful defence of the U.S. central bank's crisis-battling efforts, which he said prevented an even greater calamity.

"As serious as the effects of the crisis have been ... the outcome could have been markedly worse without the strong actions" taken by the Fed and other authorities around the globe, Bernanke told the Senate Banking Committee.

President Barack Obama nominated the former Princeton University economics professor to another four-year stint as Fed chairman in August, praising his handling of the worst financial crisis since the 1930s. His current term expires on January 31.

Under Bernanke's tenure, the Fed has slashed interest rates close to zero and pumped more than a trillion dollars into the financial system to beat back the worst financial crisis since the Great Depression.

However, the soft-spoken Fed chairman, who was first named to the post by President George W. Bush, was likely to face aggressive questioning at the hearing.

Lawmakers are upset over taxpayer bailouts of financial firms such as American International Group and Bear Stearns, and what they see as lax Fed regulation of banks and lenders that laid the groundwork for the credit crisis.

Senator Bernie Sanders, an independent from Vermont who is not a member of the panel, said on Wednesday he was placing a "hold" on the nomination, arguing the Fed chief had done little for average Americans, while going too easy on big banks.

That move could force Senate leaders to round up 60 votes just to consider the nomination, which could slow the confirmation process and give critics an opportunity to press their case.

The Wall Street Journal, in an editorial on Thursday, also said Bernanke does not deserve a second term.

The paper praised him for his response to the financial crisis but took him to task for perceived missteps in the past, such as his support when he was a Fed governor for keeping interest rates low for prolonged period earlier in the decade, which many critics contend fuelled the housing bubble.

The newspaper's editors also questioned whether he will be willing to make unpopular decisions. "The hard part, the time when central bankers earn their fame, is when they have to take the money away," they wrote.

Despite voices of discontent, the nomination appears likely to overcome any hurdles.

Committee Chairman Christopher Dodd opened the hearing by making clear he would support the nomination, saying the reappointment would send "right signal" to financial markets.

However, the committee's top Republican, Senator Richard Shelby, criticized the Fed's pre-crisis policies.

Earlier on Thursday, Treasury Secretary Timothy Geithner rose to Bernanke's defence. "He did things that had never been done in the past with enormous creativity and bravery, frankly," he told CNBC.

"The president has full confidence in him and we are confident he will be confirmed," he said.

Dodd's panel needs to approve the nomination to send it before the full Senate. If the Senate does not confirm him by January 31, Bernanke could continue to serve until replaced.

Even if confirmed, as widely expected, Bernanke faces the prospect of running a diminished institution if congressional proposals to curtail the Fed's powers and political independence become law.

Dodd has proposed stripping the Fed of its regulatory powers in favour of unifying fragmented U.S. bank oversight under a single roof. He also would require presidential appointment and Senate confirmation of regional Federal Reserve bank board chairmen, taking away a prerogative currently enjoyed by the 12 regional Fed banks.

More worrying for the Fed, legislation the House of Representatives could vote on next week would submit the central bank's monetary policy decision-making to review by a congressional watchdog agency. Sanders has backed a matching measure in the Senate, but Dodd voiced support for the Fed's independence at the hearing.

Bernanke told the panel that most signs point to stabilizing financial markets and an economy tiptoeing out of recession. He said the Fed would carefully calibrate its withdrawal of ultra-low interest rates and the cash flood it has pumped in the financial system, he said.

"We are ... keenly aware that, to ensure longer-term economic stability, we must be prepared to withdraw the extraordinary policy support in a smooth and timely way as markets and the economy recovery," he said. "Determining the appropriate time and pace for the withdrawal of stimulus will require careful analysis and judgement."

Membership of the Board of Governors of the Federal Reserve System, 1914-Present

Appointive Members
Members | Chairmen | Vice Chairmen
Ex-Officio Members
Secretaries of the Treasury | Comptrollers of the Currency
Historical Notes
Appointive Members

Name and District Date of initial oath of office Other dates and information relating to membership
Charles S. Hamlin
Boston Aug. 10, 1914 Reappointed in 1916 and 1926. Served until Feb. 3, 1936.
Paul M. Warburg
New York Aug. 10, 1914 Term expired Aug. 9, 1918.
Frederic A. Delano
Chicago Aug. 10, 1914 Resigned July 21, 1918.
W.P.G. Harding
Atlanta Aug. 10, 1914 Term expired Aug. 9, 1922.
Adolph C. Miller
San Francisco Aug. 10, 1914 Reappointed in 1924. Reappointed in 1934 from the Richmond District. Served until Feb. 3, 1936.
Albert Strauss
New York Oct. 26, 1918 Resigned Mar. 15, 1920.
Henry A. Moehlenpah
Chicago Nov. 10, 1919 Term expired Aug. 9, 1920.
Edmund Platt
New York June 8, 1920 Reappointed in 1928. Resigned Sept. 14, 1930.
David C. Wills
Cleveland Sept. 29, 1920 Term expired Mar. 4, 1921.
John R. Mitchell
Minneapolis May 12, 1921 Resigned May 12, 1923.
Milo D. Campbell
Chicago Mar. 14, 1923 Died Mar. 22, 1923.
Daniel R. Crissinger
Cleveland May 1, 1923 Resigned Sept. 15, 1927.
George R. James
St. Louis May 14, 1923 Reappointed in 1931. Served until Feb. 3, 1936.
Edward H. Cunningham
Chicago May 14, 1923 Died Nov. 28, 1930.
Roy A. Young
Minneapolis Oct. 4, 1927 Resigned Aug. 31, 1930.
Eugene Meyer
New York Sept. 16, 1930 Resigned May 10, 1933.
Wayland W. Magee
Kansas City May 18, 1931 Term expired Jan. 24, 1933.
Eugene R. Black
Atlanta May 19, 1933 Resigned Aug. 15, 1934.
M.S. Szymczak
Chicago June 14, 1933 Reappointed in 1936 and 1948. Resigned May 31, 1961.
J.J. Thomas
Kansas City June 14, 1933 Served until Feb. 10, 1936.
Marriner S. Eccles
San Francisco Nov. 15, 1934 Reappointed in 1936, 1940, and 1944. Resigned July 14, 1951.
Joseph A. Broderick
New York Feb. 3, 1936 Resigned Sept. 30, 1937.
John K. McKee
Cleveland Feb. 3, 1936 Served until Apr. 4, 1946.
Ronald Ransom
Atlanta Feb. 3, 1936 Reappointed in 1942. Died Dec. 2, 1947.
Ralph W. Morrison
Dallas Feb. 10, 1936 Resigned July 9, 1936.
Chester C. Davis
Richmond June 25, 1936 Reappointed in 1940. Resigned Apr. 15, 1941.
Ernest G. Draper
New York Mar. 30, 1938 Served until Sept. 1, 1950.
Rudolph M. Evans
Richmond Mar. 14, 1942 Served until Aug. 13, 1954.
James K. Vardaman, Jr.
St. Louis Apr. 4, 1946 Resigned Nov. 30, 1958.
Lawrence Clayton
Boston Feb. 14, 1947 Died Dec. 4, 1949.
Thomas B. McCabe
Philadelphia Apr. 15, 1948 Resigned Mar. 31, 1951.
Edward L. Norton
Atlanta Sept. 1, 1950 Resigned Jan. 31, 1952.
Oliver S. Powell
Minneapolis Sept. 1, 1950 Resigned June 30, 1952.
Wm. McC. Martin, Jr.
New York Apr. 2, 1951 Reappointed in 1956. Term expired Jan. 31, 1970.
A.L. Mills, Jr.
San Francisco Feb. 18, 1952 Reappointed in 1958. Resigned Feb. 28, 1965.
J.L. Robertson
Kansas City Feb. 18, 1952 Reappointed in 1964. Resigned Apr. 30, 1973.
C. Canby Balderston
Philadelphia Aug. 12, 1954 Served through Feb. 28, 1966.
Paul E. Miller
Minneapolis Aug. 13, 1954 Died Oct. 21, 1954.
Chas. N. Shepardson
Dallas Mar. 17, 1955 Retired Apr. 30, 1967.
G.H. King, Jr.
Atlanta Mar. 25, 1959 Reappointed in 1960. Resigned Sept. 18, 1963.
George W. Mitchell
Chicago Aug. 31, 1961 Reappointed in 1962. Served until Feb. 13, 1976.
J. Dewey Daane
Richmond Nov. 29, 1963 Served until Mar. 8, 1974.
Sherman J. Maisel
San Francisco Apr. 30, 1965 Served through May 31, 1972.
Andrew F. Brimmer
Philadelphia Mar. 9, 1966 Resigned Aug. 31, 1974.
William W. Sherrill
Dallas May 1, 1967 Reappointed in 1968. Resigned Nov. 15, 1971.
Arthur F. Burns
New York Jan. 31, 1970 Term began Feb. 1, 1970. Resigned Mar. 31, 1978.
John E. Sheehan
St. Louis Jan. 4, 1972 Resigned June 1, 1975.
Jeffrey M. Bucher
San Francisco June 5, 1972 Resigned Jan. 2, 1976.
Robert C. Holland
Kansas City June 11, 1973 Resigned May 15, 1976.
Henry C. Wallich
Boston .Mar. 8, 1974 Resigned Dec. 15, 1986.
Philip E. Coldwell
Dallas Oct. 29, 1974 Served through Feb. 29, 1980.
Philip C. Jackson, Jr.
Atlanta July 14, 1975 Resigned Nov. 17, 1978.
J. Charles Partee
Richmond Jan. 5, 1976 Served until Feb. 7, 1986.
Stephen S. Gardner
Philadelphia Feb. 13, 1976 Died Nov. 19, 1978.
David M. Lilly
Minneapolis June 1, 1976 Resigned Feb. 24, 1978.
G. William Miller
San Francisco Mar. 8, 1978 Resigned Aug. 6, 1979.
Nancy H. Teeters
Chicago Sept. 18, 1978 Served through June 27, 1984.
Emmett J. Rice
New York June 20, 1979 Resigned Dec. 31, 1986.
Frederick H. Schultz
Atlanta July 27, 1979 Served through Feb. 11, 1982.
Paul A. Volcker
Philadelphia Aug. 6, 1979 Resigned August 11, 1987.
Lyle E. Gramley
Kansas City May 28, 1980 Resigned Sept. 1, 1985.
Preston Martin
San Francisco Mar. 31, 1982 Resigned April 30, 1986.
Martha R. Seger
Chicago July 2, 1984 Resigned March 11, 1991.
Wayne D. Angell
Kansas City Feb. 7, 1986 Served through Feb. 9, 1994.
Manuel H. Johnson
Richmond Feb. 7, 1986 Resigned August 3, 1990.
H. Robert Heller
San Francisco Aug. 19, 1986 Resigned July 31, 1989.
Edward W. Kelley, Jr.
Dallas May 26, 1987 Reappointed in 1990; resigned Dec. 31, 2001.
Alan Greenspan
New York Aug. 11, 1987 Reappointed in 1992; term expired Jan. 31, 2006.
John P. LaWare
Boston Aug. 15, 1988 Resigned April 30, 1995.
David W. Mullins, Jr.
St. Louis May 21 1990 Resigned Feb. 14, 1994.
Lawrence B. Lindsey
Richmond Nov. 26, 1991 Resigned Feb. 5, 1997.
Susan M. Phillips
Chicago Dec. 2, 1991 Served through June 30, 1998.
Alan S. Blinder
Philadelphia June 27, 1994 Term expired Jan. 31, 1996.
Janet L. Yellen
San Francisco Aug. 12, 1994 Resigned Feb. 17, 1997.
Laurence H. Meyer
St. Louis June 24, 1996 Term expired Jan. 31, 2002.
Alice M. Rivlin
Philadelphia June 25, 1996 Resigned July 16, 1999.
Roger W. Ferguson, Jr.
Boston Nov. 5, 1997 Reappointed in 2001; resigned April 28, 2006
Edward M. Gramlich
Richmond Nov. 5, 1997 Resigned August 31, 2005.
Susan S. Bies
Chicago Dec. 7, 2001 Resigned March 30, 2007.
Mark W. Olson
Minneapolis Dec. 7, 2001 Resigned June 30, 2006.
Ben S. Bernanke
Atlanta Aug. 5, 2002 Resigned June 21, 2005; reappointed Feb. 1, 2006.
Donald L. Kohn
Kansas City Aug. 5, 2002
Kevin M. Warsh
New York Feb. 24, 2006
Randall S. Kroszner
Richmond Mar. 1, 2006 Resigned January 21, 2009.
Frederic S. Mishkin
Boston Sept. 5, 2006 Resigned August 31, 2008.
Elizabeth A. Duke
Philadelphia Aug. 5, 2008
Daniel K. Tarullo
Boston Jan. 28, 2009

Chairmen Date of term
Charles S. Hamlin Aug. 10, 1914-Aug. 9, 1916
W.P.G. Harding Aug. 10, 1916-Aug. 9, 1922
Daniel R. Crissinger May 1, 1923-Sept. 15, 1927
Roy A. Young Oct. 4, 1927-Aug. 31, 1930
Eugene Meyer Sept. 16, 1930-May 10, 1933
Eugene R. Black May 19, 1933-Aug. 15, 1934
Marriner S. Eccles Nov. 15, 1934-Jan. 31, 19481
Thomas B. McCabe Apr. 15, 1948-Mar. 31, 1951
Wm. McC. Martin, Jr Apr. 2, 1951-Jan. 31, 1970
Arthur F. Burns Feb. 1, 1970-Jan. 31, 1978
G. William Miller Mar. 8, 1978-Aug. 6, 1979
Paul A. Volcker Aug. 6, 1979-Aug. 11, 1987
Alan Greenspan Aug. 11, 1987-Jan. 31, 20062
Ben S. Bernanke Feb. 1, 2006-
1. Served as Chairman Pro Tempore from February 3, 1948, to April 15, 1948. Return to text
2. Served as Chairman Pro Tempore from March 3, 1996, to June 20, 1996. Return to text
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Vice Chairmen Date of term
Frederic A. Delano Aug. 10, 1914-Aug. 9, 1916
Paul M. Warburg Aug. 10, 1916-Aug. 9, 1918
Albert Strauss Oct. 26, 1918-Mar. 15, 1920
Edmund Platt July 23, 1920-Sept. 14, 1930
J.J. Thomas Aug. 21, 1934-Feb. 10, 1936
Ronald Ransom Aug. 6, 1936-Dec. 2, 1947
C. Canby Balderston Mar. 11, 1955-Feb. 28, 1966
J.L. Robertson Mar. 1, 1966-Apr. 30, 1973
George W. Mitchell May 1, 1973-Feb. 13, 1976
Stephen S. Gardner Feb. 13, 1976-Nov. 19, 1978
Frederick H. Schultz July 27, 1979-Feb. 11, 1982
Preston Martin Mar. 31, 1982-Apr. 30, 1986
Manuel H. Johnson Aug. 4, 1986-Aug. 3, 1990
David W. Mullins, Jr. July 24, 1991-Feb. 14, 1994
Alan S. Blinder June 27, 1994-Jan. 31, 1996
Alice M. Rivlin June 25, 1996-July 16, 1999
Roger W. Ferguson, Jr. Oct. 5, 1999-Apr. 28, 2006
Donald L. Kohn June 23, 2006-
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Ex-Officio Members

Secretaries of the Treasury Date of term
W.G. McAdoo Dec. 23, 1913-Dec. 15, 1918
Carter Glass Dec. 16, 1918-Feb. 1, 1920
David F. Houston Feb. 2, 1920-Mar. 3, 1921
Andrew W. Mellon Mar. 4, 1921-Feb. 12, 1932
Ogden L. Mills Feb. 12, 1932-Mar. 4, 1933
William H. Woodin Mar. 4, 1933-Dec. 31, 1933
Henry Morgenthau, Jr. Jan. 1, 1934-Feb. 1, 1936

Comptrollers of the Currency Date of term
John Skelton Williams Feb. 2, 1914-Mar. 2, 1921
Daniel R. Crissinger Mar. 17, 1921-Apr. 30, 1923
Henry M. Dawes May 1, 1923-Dec. 17, 1924
Joseph W. McIntosh Dec. 20, 1924-Nov. 20, 1928
J.W. Pole Nov. 21, 1928-Sept. 20, 1932
J.F.T. O'Connor May 11, 1933-Feb. 1, 1936
Historical Notes

Under the provisions of the original Federal Reserve Act, the Federal Reserve Board was composed of seven members, including five appointive members, the Secretary of the Treasury, who was ex-officio chairman of the Board, and the Comptroller of the Currency. The original term of office was ten years, and the five original appointive members had terms of two, four, six, eight, and ten years respectively. In 1922 the number of appointive members was increased to six, and in 1933 the term of office was increased to twelve years.

The Banking Act of 1935, approved Aug. 23, 1935, changed the name of the Federal Reserve Board to the Board of Governors of the Federal Reserve System and provided that the Board should be composed of seven appointive members; that the Secretary of the Treasury and the Comptroller of the Currency should continue to serve as members until Feb. 1, 1936; that the appointive members in office on the date of that act should continue to serve until Feb. 1, 1936, or until their successors were appointed and had qualified; and that thereafter the terms of members should be fourteen years and that the designation of Chairman and Vice Chairman of the Board should be for a term of four years.

Date after words "Resigned" and "Retired" denotes final day of service.

Chairman and Vice Chairman were designated Governor and Vice Governor before Aug. 23, 1935.

Bernanke: Fed will keep eye on sliding dollar

In the November 16, 2009 article "Bernanke: Fed will keep eye on sliding dollar," Associated Press economics writer Jeannine Aversa reports the Federal Reserve System anticipates keeping interests rates extremely low to encourage economic growth. But the declining value of the dollar and continued high budget deficits remain as challenges for U.S. macroeconomoic policymakers.

WASHINGTON – Federal Reserve Chairman Ben Bernanke on Monday said the central bank will monitor the sliding U.S. dollar but pledged anew to keep interest rates at record lows to nurture the economic recovery.

In remarks to the Economic Club of New York, Bernanke engaged in a delicate dance. He tried to bolster confidence in the dollar without taking any real action.

"Bernanke is trying to use words — not interest rates — to prevent the dollar from going even lower," said Jay Bryson, global economist with Wells Fargo Securities.

Bryson and other analysts said they didn't think Bernanke was signaling that the Fed would join with central bankers in other countries to intervene in markets to strengthen the dollar. But that is an option for the Fed if the dollar were to start plunging.

Bernanke's remarks gave a brief lift to the dollar in trading Monday. But it resumed its fall after traders focused on his assertion that the central bank would hold interest rates low for an extended period. The dollar has posted double-digit declines against other major currencies since spring.

Low interest rates could put additional downward pressure on the dollar. And economists say a free-fall in the value of the dollar, while unlikely, can't be entirely dismissed. Still, low rates are needed to encourage consumers and businesses to spend more and fuel the economic rebound.

"We are attentive to the implications of changes in the value of the dollar," Bernanke said in rare remarks about the greenback. The Fed, he said, will continue to "monitor these developments closely."

Commodity prices — such as oil — have risen lately. That pickup likely reflects a revival in global economic activity and the recent depreciation of the dollar, Bernanke said. Commodities such as oil and gold are priced in dollars so they become cheaper when the dollar falls.

Despite "cross-currents" in the outlook for prices, the Fed chief predicted inflation probably will remain "subdued for some time."

That gives the Fed leeway to hold rates at record-low levels for an "extended period," he said, repeating a pledge made at the Fed's meeting earlier this month.

The sagging dollar has helped sales of U.S. exports because it makes those goods less expensive on foreign markets. But if the dollar were to plunge in value, it could ignite a new economic crisis in the U.S., prompting investors to dump their dollar holdings and driving up domestic interest rates.

Still, by holding rates at record-lows, the Fed risks creating a speculative bubble.

"It's extraordinarily difficult to tell" if a bubble is forming, Bernanke acknowledged. "It's not obvious to me in any case."

If a bubble did form, "we use our interest rate tools to try to meet our mandate — full employment and price stability," he said.

The Fed's decision to hold interest rates at exceptionally low levels after the 2001 recession was blamed for feeding the housing bubble. When the housing boom went bust in late 2006 the economy soon followed.

During the question and answer session, the Fed chief also urged Congress and the White House to trim the record $1.42 trillion budget deficit, another force depressing the value of the dollar.

China, the No. 1 lender to the United States, has expressed concerns that the falling dollar threatens the value of its existing U.S. holdings. China also is the third-largest market for American goods, accounting for 6 percent of U.S. exports through September.

The ICE Dollar Index, which measures the value of the dollar against a basket of foreign currencies, has fallen 16.7 percent since March 4. The dollar is off 19.5 percent against the Canadian dollar since March 9, while the euro is up 18.4 percent since March 4. The dollar has also lost 12.2 percent of its value against the Japanese yen since April.

In recent weeks, some Asian countries have been intervening to try to keep their currencies from rising further against the dollar. They are feeling pressure because of China's tight link to the dollar which has meant as the dollar has tumbled since March, China's currency has fallen in relation to their currencies, giving China a competitive advantage.

Economists expect the Fed will hold rates near zero at its next meeting on Dec. 15-16 and into part of next year to help the recovery gain traction.

Bernanke predicted the economy should continue to grow next year, but he warned of "important headwinds" that will restrain the recovery, including a weak job market and tight credit for small businesses and households.

After a record four straight losing quarters, the economy started to grow again in the July-September period at a pace of 3.5 percent. Government-supported spending on homes and cars drove the rebound, raising questions about the staying power of the recovery once that assistance fades.

Bernanke said the rebound reflected more than "purely temporary factors" and predicted growth would continue into next year.

One of the biggest threats hanging over the recovery is rising unemployment. The nation's unemployment rate bolted to 10.2 percent in October. It marked just the second time in the post-World War II period that the jobless rate topped 10 percent.

Some economists think it could rise as high as 11 percent by the middle of next year before starting to gradually drift down.

Bernanke said the unemployment rate "likely will decline only slowly" if economic growth remains "moderate" as he expects.

Bernanke's trillion-dollar decision

In the October 24, 2009 Politico article "Bernanke's trillion-dollar decision," Eamon Javors provides an example of why the chairman of the U.S. Federal Reserve System is one of the most powerful people in the world:

The biggest decision of the economic recovery will be made in the next six months, and Barack Obama will have almost nothing to do with it.

Forget the debate over TARP, and never mind the questions about a second stimulus. This decision is about when to pull out $1 trillion that’s propping up the U.S. banking system. And it will be Federal Reserve Chairman Ben Bernanke and his Fed colleagues who make the call.

That’s hard enough for a White House that knows its political fortunes rise and fall with the economy.

What’s worse is that Bernanke and Obama – like many presidents and Fed chairmen past – won’t necessarily have the same goals for this trillion-dollar decision.

Fed chiefs worry about inflation. Bernanke wants to take the money out quickly enough to prevent the economy from overheating and causing a jump in prices that strangles growth. But move too fast, and the economic recovery runs out of fuel.

Presidents worry about jobs. Obama probably wouldn’t mind a little overheating, say, next summer – when voters are starting to make up their minds about the 2010 congressional elections, and he hopes the economy can shake the 10-percent unemployment rate doldrums.

“Any chairman of the Fed will do what’s right for the country, not what’s right for the administration,” said Ernest Patrikis, a partner at the law firm White & Case who spent 30 years at the New York Fed. “That’s his job – that’s why he’s apolitical.”

“The exit will be so difficult,” said economist Joseph Brusuelas of Moody’s Economy.com. “Bernanke wants to engineer a recovery that does not include inflation. Obama wants a more robust recovery and like many political actors may be willing to forgo a little inflation for a little more employment.”

The White House is already worried that jobs won’t be coming back fast enough next year, Fed or no Fed.

Obama economic adviser Christina Romer warned a congressional panel Thursday that the jobs picture will remain “painfully weak” through 2010, with a seriously elevated unemployment rate for another year.

So all the White House can do is watch and wait, and hope it doesn’t pay a political price for any missteps by Fed officials they can’t control.

“It’s a dicey thing to do, and they know it,” said Sen. Richard Shelby (R-Ala.), the ranking member on the Senate Banking Committee. “They have to be careful.”

The Fed’s moves are shrouded in secrecy, their prerogative to move the levers of the economy closely guarded – so much so that there’s been a recent a rise in populist anger about this all-powerful agency that exists largely outside the democratic process.

But because the Fed is an independent agency, it’s even considered bad form for a president to talk much about it – and indeed, the White House refused to comment for this story.

Last fall, the Fed injected $ 1 trillion-plus into the nation’s banking system – at times, by providing financial institutions with cash to cover their losses as the global meltdown spread. Now Fed officials are already talking about the need to withdraw the funds injected into the economy during the darkest days of the crisis, moves that are credited with largely saving the United States from plummeting into an economic depression.

“Given the highly unusual economic and financial circumstances, judging when the time is appropriate to remove policy accommodation, and then calibrating that removal, will be challenging,” said Federal Reserve Vice Chairman Donald Kohn in a speech to the Cato Institute on Sept. 30. “Still, we need to be ready to take the necessary actions when the time comes, and we will be.”

Translation: “policy accommodation” is the cash, and “the necessary actions” are the decision to ease it out of the economy.”

And is the Fed prepared to the pull the trigger? “We will be” seems to cover it.

Already, the Fed is already showing some signs of restlessness. On Monday, the New York Fed tested its “reverse-repo” process -- one tool the Fed could use to use to pull the money out when the time comes. The test run was widely interpreted as a sign the Fed is getting ready to act – but when, nobody knows.

The Fed can also tap on the brakes at the first sign of inflation by raising interest rates, now near zero. The Fed has said it will keep the rock-bottom rates for an extended period, but it won’t be more specific when they could go up – a decision that is bound to be controversial when it comes.

Patrikis thinks the Fed will make a decision on withdrawing liquidity either during the second quarter of 2010, or after the November elections that year – but that it won’t make any dramatic moves in the run-up to Election Day.

Still, he said, it is too early to predict what the Fed might do. And Patrikis points out that Obama will have indirect input into the decision, because there are two vacancies on the Fed’s board now that Obama will fill in the coming months. The president will surely select board members whose economic judgment he trusts.

Between the two vacancies, a member who Obama appointed earlier this year and Bernanke himself, the president will likely have named four of the seven members of the Fed’s Board of Governors by the time they make the call.

But the Fed knows actions like that can have political consequences. “There are few politicians who like higher interest rates,” said one former Fed official. “And President Obama is a politician.” That said, the official continued, “I suspect they will be broadly on the same page.”

That’s because Obama, too, has a longer-term time frame in mind: 2012, when he will be running for reelection. It’s in Obama’s interest for the Fed to take inflation prevention measures now so that he doesn’t have to run a tricky reelection campaign in a high-inflation environment.

Tensions between Presidents and Fed chairmen are nothing new.

In the 1980s, Fed Chairman Paul Volcker declared war on inflation. His strategy: raising interest rates. Volcker jacked the Fed funds rate to 20 percent, which contributed to the deep early 1980s recession that caused howls of protest from the White House and incumbent Republicans on Capitol Hill. The Fed, grumbled then-Senate Majority Leader Howard Baker (R-Tenn.), should “get its boot off the neck of the economy.”

Nonetheless, Volcker’s strategy worked, and the Fed broke the back of the inflation cycle. Ironically, Volcker is a top economic adviser to Obama today.

In the 1990s, President George H.W. Bush blamed Fed Chairman Alan Greenspan for his election loss to Bill Clinton. Bush didn’t believe Greenspan was lowering interest rates fast enough to pull the nation out of a recession – which gave Clinton, with his famous “it’s the economy, stupid” campaign, an opening to trounce the elder Bush.

Mark Gertler, a professor of economics at New York University, says the lesson of history is that politicians should not interfere with the central bank. “If the Fed doesn’t act independently, the economy is endangered,” said Gertler. “It would be dangerous if the administration appeared to be interfering with the Fed.”

Financial Services Committee Chairman Barney Frank (D-Mass.) doubts they’ll be any daylight between Obama and Bernanke – who Obama just reappointed over the summer at a time when Wall Street needed a signal that there would be continuity at the Fed.

He argues that Bernanke and Obama will have the same agenda in 2010: fixing the economy.

“I think they are very much in sync,” said Frank. Asked about potential divergence between the Fed and the White House, he said, “That reflects a journalist’s hope that there will be friction. Obama and Bernanke have both argued that at some point they’re going to unwind this.”

Fed says economy perked up from depressed levels

In the October 21, 2009 Reuters article "Fed says economy perked up from depressed levels," Emily Kaiser says the economy is improving in most parts of the United States.

WASHINGTON (Reuters) – U.S. economic conditions stabilized or improved modestly in most parts of the country, according to a Federal Reserve report on Wednesday that suggested the economy was slowly clawing out of a recession.

In its "Beige Book" of anecdotal reports on the economy, the Fed noted improvement in two of the hardest hit areas -- residential real estate and manufacturing.

"Reports from the 12 Federal Reserve districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels," the Fed said in its report, which was prepared at the Federal Reserve Bank of Richmond based on information collected before October 13.

"Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered."

U.S. stocks stayed at higher levels after the report was released, while prices for government debt remained lower, as did the U.S. dollar.

Jennifer Lee, an economist with BMO Capital Markets, said the tone of the Fed's report was "tentatively" more positive than the prior one, which was released on September 9.

"Not super-duper-jumping-up-and-down-with-great-excitement positive, but slightly more optimistic than seen in recent reports," she said.

The central bank gave a grim assessment of commercial real estate, which is widely seen as one of the big remaining trouble spots for the still-struggling financial sector.

"The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all districts," the Fed said.

A number of the regional Fed banks said businesses in their area did not expect commercial real estate to improve much, if at all in, in 2010.

"Tenants are demanding significant concessions -- including space improvements and one- to two-year leasing commitments -- along with low rental rates," the Boston Fed reported.

THOSE WALL STREET BONUSES

Labor markets were typically characterized as weak or mixed, although there were "occasional pockets of improvement." That assessment supported the view that the worst of the job losses are over, but it may be a while before growth resumes.

The Atlanta Fed said many employers "indicated that they were holding on to the most skilled workers, but have reduced overall hours. They feel that a sustained increase in orders and sales is a prerequisite to adding to payrolls."

Despite all the recent talk about huge bonuses at Wall Street firms, the New York Fed heard from one of its contacts that times were getting tougher for top-tier bankers.

"Compensation -- especially cash compensation -- has reportedly fallen sharply, and is expected to fall further during the remainder of the year and into 2010, most notably for the top earners in the industry," the New York Fed said.

The report said the "cash for clunkers" auto sales incentive program left depleted inventories and slower sales in its wake. Overall spending remained weak in most districts, although "some improvements" were noted.

In residential real estate, which was at the heart of the credit crisis that sparked the recession, the government's $8,000 first-time homebuyers' tax credit helped to lift sales of low- to middle-priced houses, the Fed said. However, residential construction activity remained weak in most districts.

Measures of discretionary and business spending were a mixed bag. In New York City, retail sales showed improvement, particularly for one unnamed higher-end department store.

Broadway theaters report that attendance picked up somewhat in September and early October but remained slightly lower than a year earlier.

In North Carolina, a contact on the Outer Banks, a popular vacation spot, indicated that bookings for the Columbus Day holiday weekend were somewhat stronger than a year ago, which she attributed to "visitors being a little more positive."

And in the Boston Fed's region, business travel was especially soft, and one contact worried that decreased corporate travel and spending will become "the new norm."

Bernanke subdued on Fed's consumer protection role

In the October 1, 2009 article "Bernanke subdued on Fed's consumer protection role," Associated Press economics writer Jeannine Aversa reports:

WASHINGTON – Federal Reserve Chairman Ben Bernanke told Congress Thursday that the central bank is "well suited" to oversee colossal financial companies whose failure could endanger the entire economy.

But his written testimony did not mention the Fed losing some of its consumer protection duties, after the Fed chief previously criticized the Obama administration for its plan to strip the central bank of some of those powers.

Testifying before the House Financial Services Committee, Bernanke said only that protecting consumers from abusive practices involving mortgages, credit cards and other financial products is "vitally important."

In past appearances on Capitol Hill, Bernanke has laid out a spirited defense that the Fed should keep those powers. The administration wants to create a consumer protection agency for risky financial products.

Rep. Melvin Watt, D-N.C., was stunned by what he thought was Bernanke's short shrift to the consumer protection issue. "Five sentences on consumer protection when everything else gets substantially more space," Watt said. "It is just not a good message to send."

During the hearing, Bernanke conceded that the Fed didn't do the job it should have in protecting consumers, but said improvements are being made. He suggested the central bank could take further steps to strengthen such oversight.

"We are competent and have the skills ... I think we can do that," he said.

Bernanke did lay out a case for the additional power over so-called "too big to fail" financial companies, which could include insurance companies, hedge funds and others beyond the big banks traditionally overseen by the Fed. In fielding questions, Bernanke said the "focus" in that regard should remain on financial firms, rather than on other types of companies.

As part of a sweeping rewrite of the nation's financial rule book, the administration has proposed tapping the Fed to regulate those companies, and Bernanke said the central bank has the expertise to best carry out those duties.

For both accountability and effectiveness, that power is "best vested with a single agency," Bernanke said. "I believe that the expertise we have developed in supervising large, diversified and interconnected banking organizations ... makes the Federal Reserve well suited to serve as the consolidated supervisor."

The Fed would be willing to concede some of its bailout power if Congress creates a new mechanism to safely wind down big financial firms on the brink, something along the lines of what the Federal Deposit Insurance Corp. does with banks, Bernanke said. The Fed's bailout of insurance giant American International Group Inc. and its financial backing of JPMorgan's takeover of Bear Stearns angered the public and some in Congress.

On another matter, Bernanke said the Fed is "about to issue" a proposal cracking down on executive pay. It seeks to make sure that bonuses and other compensation don't encourage undue risk-taking that could hurt the company or the larger financial system.

Asked whether a crisis is brewing in the troubled commercial real-estate market, Bernanke responded: "I don't think so. But we'll have to watch it carefully."

To police the broader U.S. financial system for risks, Bernanke supported a council of regulators do that job — also in line with Obama's proposal.

All financial regulators, Bernanke said, should step up day-to-day oversight and have a big-picture approach in this area.

"To further encourage a more comprehensive and holistic approach to financial oversight, all federal financial supervisors and regulators — not just the Federal Reserve — should be directed and empowered to take account of risks to the broader financial system," he said.

Bernanke said potential risks monitored by the council could include significant increases in leverage at companies and gaps in regulatory coverage that can arise when new financial products are created. The Fed chief said a "no doc loan" — where people don't have to document their income to a lender_ would be an example of a risky product. Those loans were made during the housing boom and contributed to the bust.

Bernanke insisted that his endorsement of a council to police risk isn't a shift in his stance. "There has been some misunderstanding ... we support a council ... we never objected to a council," he said.

Both Democrats and Republicans have been loathe to give the Fed additional powers. They argue that the central bank failed to spot problems that led to the financial crisis in the first place.

"We have had debate and will have further debate about exactly what the role of the Federal Reserve will be in the systemic risk regulation. There were some, myself included, who earlier this year thought the Federal Reserve would have a larger role than it looks like it will have," said committee chairman Barney Frank, D-Mass.

Analysis: Bernanke is Obama's safe choice at Fed

In the August 26, 2009 story "Analysis: Bernanke is Obama's safe choice at Fed," Associated Press writers Tom Raum and Philip Elliott explain why it makes sense for Barack Obama to reappoint Ben Bernanke as Chairman of the Board of Governors of the Federal Reserve System:

WASHINGTON – Giving Ben Bernanke a second term as Federal Reserve chairman was the politically safe course for a president beset by multiple crises and wanting no new battles.

The decision also helped soothe jittery financial markets, while drawing applause across party lines.

President Barack Obama cited the former Princeton economist's role in navigating the nation through the worst economic distress in decades in offering him a second four-year term on Tuesday. In so doing, Obama followed the pattern of other recent presidents in reappointing a central bank chief first appointed by a predecessor on grounds that he was doing a good job.

To do otherwise could have jeopardized the still-fragile recovery that Bernanke played a central role in engineering.

While other potential candidates were considered, including top White House economic adviser Lawrence Summers, any choice other than Bernanke might well have roiled Wall Street and touched off a fierce political battle in Washington.

"He couldn't have nominated anybody else," said Mark Zandi, chief economist at Moody's Economy.com. "It would have been destructive to the financial markets and nobody would have ever understood it."

Bernanke, 55, now faces the challenge of meeting the high expectations from the White House — and the rest of the country — to repair the battered economy. To keep inflation at bay, he also must tread carefully in unwinding hundreds of billions of dollars in Fed financial rescue programs once the recovery is under way.

The mild-mannered economist, who has taken some of the boldest, costliest actions of any Federal Reserve chief, does not bring heavy political baggage to the job, even though he served briefly as chairman of President George W. Bush's Council of Economic Advisers.

"I'm sure he hasn't made all the right calls, but he doesn't have a political cell in his body, and that's what you need in a Fed chairman," said Sen. Bob Corker, R-Tenn.

Reconfirmation seems all but sure. White House officials feel certain that any vote of no confidence in Bernanke would come at much too high a political cost to lawmakers with the economy still in a fragile state.

Bernanke is recognized in academic circles as a leading scholar on the Great Depression, deemed a good area of expertise given the current crisis.

Although his present term doesn't expire until early next year, Obama moved to end speculation percolating in political circles and on Wall Street, announcing his decision Tuesday morning on the Massachusetts island of Martha's Vineyard, where the president is vacationing with his family.

"Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking that has helped put the brakes on our economic free-fall," said Obama, with Bernanke standing by his side. "Almost none of the decisions he or any of us made have been easy."

The announcement's timing also helped the White House divert attention from a pair of gloomy economic reports issued Tuesday by the administration and Congressional Budget Office predicting a slow recovery and giant deficits for years to come.

First appointed chairman by Bush in early 2006, Bernanke has been widely praised by economists, and his reappointment was generally expected. Still, there remained some uncertainty. Bernanke has been criticized by some lawmakers for not doing more to head off the crisis, and by others for doing too much to combat it with what some see as an overly accommodating monetary policy.

He also drew criticism for strong-arm tactics, along with former Treasury Secretary Henry Paulson, in pressuring Bank of America to acquire the failing Merrill Lynch & Co. And Bernanke put himself at odds with the administration recently by resisting its plan to create a consumer protection agency for risky financial products, arguing that those responsibilities should stay with the central bank.

Obama's announcement removed any uncertainty on Wall Street about a potential replacement.

"Changing Fed chairmen at this point in both the economic recovery and in the midst of ongoing financial rescue efforts would have added uncertainty and would have been disruptive to markets," said Tony Fratto, a former economic spokesman for Bush and himself a former Treasury Department official.

White House chief of staff Rahm Emanuel and Treasury Secretary Timothy Geithner were the chief voices advising Obama to reappoint Bernanke. Obama decided about a month ago it was the appropriate move and told Bernanke of his decision last week during a meeting in the Oval Office, administration officials said Tuesday.

Obama followed a pattern established by the past four presidents in reappointing Fed chiefs who had been in place when they took office. Republican Ronald Reagan in 1983 reappointed Democrat Paul Volcker, who had been first named chairman by Jimmy Carter. Alan Greenspan, a Republican first appointed by Reagan, was reappointed by George H.W. Bush, Bill Clinton and George W. Bush. The Bushes are Republicans and Clinton a Democrat.

Bernanke's re-nomination "will bring continuity to the Federal Reserve that will send the right signal to the marketplace," said Senate Majority Leader Harry Reid, D-Nev. He said he expected Senate confirmation.

Even so, some lawmakers' remarks were pointed, suggesting Bernanke's confirmation hearings could produce fireworks even if the outcome seems assured.

Senate Banking Committee Chairman Chris Dodd, D-Conn., said, "Serious questions will be raised about the role of the Federal Reserve moving forward and what authorities it should and should not have."

Richard Shelby of Alabama, the committee's senior Republican, said he wanted to explore "the impact ad hoc decision-making had on the financial markets during the crisis," including what he called a "panicked response" by some regulators.

Senate Republican leader Mitch McConnell, R-Ky., said he hoped the confirmation hearings would offer lawmakers "greater insight into the cumulative impact the administration's trillions in new spending, borrowing and debt will have on the American taxpayer."

Bernanke optimistic economy will grow again soon

In the August 21, 2009 article "Bernanke optimistic economy will grow again soon" Associated Press economics writer Jeannine Aversa reports Ben Bernanke, the chairman of the Board of Governors of the Federal Reserve System, thinks the U.S. is on the cusp of economic recovery:

JACKSON, Wyo. – Federal Reserve Chairman Ben Bernanke on Friday offered his most optimistic outlook since the financial crisis struck, saying the economy is on the verge of growing again.

Speaking at an annual Fed conference, Bernanke acknowledged no missteps by the central bank in managing the worst crisis since the Great Depression. But he conceded that consumers and businesses are still having trouble getting loans, even though the financial system is gradually stabilizing.

Economic activity in both the U.S. and around the world seems to be leveling out, and the economy is likely to start growing again soon, Bernanke said in a speech at an annual Fed conference in Jackson.

The mood here was decidedly more hopeful than it was last summer, when a sense of foreboding hung over the forum just before the financial crisis erupted.

Bernanke's hopeful remarks on the economy contributed to a rally on Wall Street. The Dow Jones industrial average surged about 155 points, or 1.7 percent, and broader stock averages also gained sharply.

Despite his upbeat tone, Bernanke cautioned that the recovery is likely to be "relatively slow at first."

Unemployment, now at 9.4 percent, is widely expected to hit double digits later this year and to remain high for many months.

The financial markets have stabilized, and some businesses and consumers have found it easier to get loans. Still, the banking system has yet to return to normal, Bernanke said.

Financial institutions face further losses on soured investments. And many businesses and households still can't get the credit they need to fuel the economy, he said.

"Although we have avoided the worst, difficult challenges still lie ahead," Bernanke told the gathering of fellow bankers, academics and economists. "We must work together to build on the gains already made to secure a sustained economic recovery."

Reviewing the past year's crisis, Bernanke outlined the many emergency measures the Fed and other regulators took to help ward off a global financial meltdown. He declined to acknowledge critics' arguments that regulators failed to detect signs of the crisis before it occurred — or that Wall Street bailouts sent a message that big companies that make reckless bets would be rescued with taxpayer money.

A $700 billion taxpayer-funded bailout program to prop up financial institutions incensed many Americans. So did the repeated bailouts of AIG, which paid hefty bonuses to employees who worked in the division that brought down the firm.

Some analysts said Bernanke appeared to be angling to keep his job for another term.

"The lack of any mea culpa suggests the Fed chairman wants to be reappointed," said Richard Yamarone, economist at Argus Research. "When you go on an interview, you never speak of your shortcomings."

President Barack Obama will have to decide in coming months whether to reappoint or replace Bernanke, whose term expires early next year.

Ken Mayland, president of ClearView Economics, said Bernanke was engaging in a "bit of cheerleading to inspire confidence," especially among consumers whose caution could restrain the recovery.

Elsewhere at the conference, European Central Bank President Jean-Claude Trichet responded to a research paper on the origins and the nature of the financial crisis by saying he was a "little bit uneasy" about talk of a return to normalcy.

"We have an enormous amount of work to do, and we should be as active as possible," Trichet said.

The bulk of Bernanke's speech chronicled the extraordinary events of the past year.

Financial markets took a dizzying plunge starting in September and into October, nearly shutting down the flow of credit. The crisis felled storied Wall Street firms. The government took over mortgage giants Fannie Mae and Freddie Mac, as well as insurance titan American International Group Inc.

Lehman Brothers failed. It filed for bankruptcy on Sept. 15, the largest in corporate history, roiling markets worldwide.

The Fed swooped in with unprecedented emergency lending programs to fight the crisis. It eventually slashed a key bank lending rate to a record low near zero. And Congress enacted programs to stimulate the economy, including a $787 billion package of tax cuts and increased government spending.

"Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major firms would have failed and the entire global financial system would have been at serious risk," Bernanke said.

Unlike in the 1930s, Washington policymakers this time acted aggressively and quickly to contain the crisis, said Bernanke, a scholar of the Great Depression.

"As severe as the economic impact has been, however, the outcome could have been decidedly worse," he said.
Global cooperation in battling the crisis was crucial, with central banks slashing interest rates and the U.S. and other governments delivering fiscal stimulus, he noted.

"The crisis, in turn, sparked a deep global recession, from which we are only now beginning to emerge," the Fed chief observed.

The conference, sponsored by the Federal Reserve Bank of Kansas City, draws a virtual who's who of the financial world — Bernanke's counterparts in other countries, academics and economists. This year's forum focused on lessons learned from the crisis and how they can be applied to prevent a repeat of the debacles.

Bernanke again urged a rewrite of U.S. financial regulations, something Congress is involved in. He repeated his call for stricter oversight of companies — such as AIG — whose failure would endanger the entire financial system and the broader economy. Obama wants to empower the Fed for that duty, something many lawmakers oppose.

Bernanke also said the U.S. needs a process to wind down globally interconnected companies, as the Federal Deposit Insurance Corp. does for failing banks.

A strengthening of financial regulation is needed, he said, "to ensure that the enormous costs of the past two years will not be borne again."

Fed Chairman Bernanke has supporters and critics

In the August 20, 2009 New York Times articleBernanke, a Hero to His Own, Can’t Shake Critics Edmund L. Andrews explains that Federal Reserve Chairman Ben Bernanke has supporters and critics for his response to the global financial crisis:

WASHINGTON — Ben S. Bernanke, chairman of the Federal Reserve, no longer looks sleep-deprived.

He still works seven days a week, but earlier this month he took two days off — for the first time in two years — to attend his son’s wedding. And he often gets home for dinner and even out to baseball games every few weeks.

As central bankers and economists from around the world gather on Thursday for the Fed’s annual retreat in Jackson Hole, Wyo., most are likely to welcome Mr. Bernanke as a conquering hero. In Washington and on Wall Street, it would be a surprise if President Obama did not nominate Mr. Bernanke for a second term, even though he is a Republican and was appointed by President George W. Bush.

But the White House has remained silent. And despite Mr. Bernanke’s credibility in financial circles, both he and the Fed as an institution have come under political fire from lawmakers in both parties over the handling of particular bailouts and the scope of the Fed’s power.

He has been frustrated that many in Congress do not give the Fed what he believes is enough credit for what it has accomplished. Indeed, Mr. Bernanke has met privately with hundreds of lawmakers in recent months to explain the Fed’s strategy.

Fellow economists, however, are heaping praise on Mr. Bernanke for his bold actions and steady hand in pulling the economy out of its worst crisis since the 1930s. Tossing out the Fed’s standard playbook, Mr. Bernanke orchestrated a long list of colossal rescue programs: Wall Street bailouts, shotgun weddings, emergency loan programs, vast amounts of newly printed money and the lowest interest rates in American history.

Even one of his harshest critics now praises him.

“He realized that the great recession could turn into the Great Depression 2.0, and he was very aggressive about taking the actions that needed to be taken,” said Nouriel Roubini, chairman of Roubini Global Economics, who had long criticized Fed officials for ignoring the dangers of the housing bubble.

But Mr. Bernanke is hardly breathing easy. Unemployment is still at 9.4 percent, and the central bank’s own forecasts assume that it will remain that high through the end of next year. Even if all goes according to plan, Fed officials said, Mr. Bernanke’s current popularity could sink if the recovery proves slower than many people expect.

While the White House keeps mum about Mr. Bernanke’s future, the leading Democratic candidates to replace him include Lawrence H. Summers, director of the National Economic Council; Janet L. Yellen, president of the Federal Reserve Bank of San Francisco; Alan S. Blinder, a Princeton economist and former Fed vice chairman; and Roger Ferguson, another former Fed vice chairman.

Mr. Bernanke faces two major challenges. On the economic front, the Fed has to decide when and how it will reverse all its emergency measures and raise interest rates back to normal without either stalling the economy or igniting inflation.

On the political front, Mr. Bernanke is trying to defend the Fed’s power and independence as the White House and Congress debate plans to overhaul the system of financial regulation.

Democrats like Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, contend that the Fed was too cozy with banks and Wall Street firms as the mortgage crisis was building. House Republicans, and some Democrats, complain that the Fed already has too much power.

“Why does the Fed deserve more authority when institutionally it seemed to have failed to prevent the current crisis?” asked Senator Dodd last month.

The political battle over President Obama’s plan to overhaul financial regulation has put Mr. Bernanke in an awkward position.

Fed officials support the administration’s proposals to put them in charge of systemic risk like the growth of reckless mortgage lending or the misuse of financial derivatives. But they chafe at the plan to shift the Fed’s consumer-protection functions, which protect people from deceptive and unfair lending practices, to a new agency.

Mr. Bernanke has avoided publicly criticizing the White House’s call for an independent consumer regulatory agency. While acknowledging that the Federal Reserve did nothing to stop mortgage practices during the housing bubble, Mr. Bernanke has argued that the Fed has since written tough new protections for both mortgage borrowers and credit card customers.

“We think the Fed can play a constructive role in protecting consumers,” he told the House Financial Services Committee last month.

Mr. Bernanke and other Fed officials now concede they failed to anticipate the full danger posed by the explosion of subprime mortgage lending. As recently as the spring of 2007, Mr. Bernanke still contended that the problems of the housing market were largely “contained” to subprime mortgages. When panic over mortgage-backed securities began spreading through the broader credit markets in late July 2007, Fed officials initially refused to cut interest rates.

By December 2007, Mr. Bernanke became increasingly convinced that the economy itself was in trouble but policy makers were unable to reach agreement and decided not to reduce interest rates.

At a meeting on Jan. 21, 2008, the Fed slashed the benchmark federal funds rate by 0.75 percent, to 3.5 percent, the biggest one-time reduction in decades. Nine days later, officials cut the rate again, down to 3 percent.

As the credit crisis deepened, Mr. Bernanke urged Fed officials to devise proposals that had never been tried before. They responded with a kaleidoscope of emergency loan programs to a wide array of industries.

“He has had tremendous courage throughout this episode,” said Frederic S. Mishkin, a professor at Columbia University’s business school and a former Fed governor.

Amid the chaos, Fed and Treasury officials made numerous mistakes. Their original idea for the $700 billion to buy up bad mortgage assets held by banks has yet to get off the ground.

But economists say Mr. Bernanke’s most important accomplishment was to create staggering amounts of money out of thin air.

All told, the Federal Reserve has expanded its balance sheet to $1.9 trillion today, from about $900 billion a year ago. Analysts now caution that Mr. Bernanke’s job is only half complete. He will eventually have to reel all that money back. He has already laid out elements of the Fed’s “exit strategy,” but Fed officials have been careful to say it is still too early to pull back any time soon.