Corker vs Bernanke – Know Your Fed Chairs

Tennessee Senator Bob Corker (R) went on the offensive during the Q&A period of Federal Reserve Chairman Ben Bernanke’s Senate testimony this week.  A portion of the transcript, via Business Insider:

Sen. Corker: I don’t think there’s any question that you would be the biggest dove, if you will, since World War II. I think that’s something you’re rather proud of…Do you all ever talk about the longer term degrading effect of these policies as we try to live for today?

Chairman Bernanke: I think one concern we have is the effect of long term unemployment and the people who haven’t had jobs for years. That means they’re never going to acquire skills for years and be a productive part of our workforce

You called me a dove. Well maybe in some respects I am but on the other hand my inflation record is the best of any Federal Reserve chairman in the post-war period, or at least one of the best — about 2 percent average inflation…

It is not clear that Corker knows much about the history of inflation since WWII, so I thought a little chart would be handy:

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As is clear to anyone who looks at the data, Bernanke does in fact have one of the better records on inflation in the post-WWII period. Is it the best?  On the basis of average headline CPI during time as chair, Bernanke looks to come in second behind William McChesney Martin, Jr.  Note, however, that it would be reasonable to point out that inflation accelerated during Martin’s watch, setting the stage for the high-inflation 1970’s.  Taking the path of inflation into account, I would tend to argue the Bernanke’s record is superior to Martin’s.

If we change the focus to headline PCE inflation (quarterly), then Bernanke comes slightly ahead of Martin on averages alone:

(click to enlarge)

Of course, using only inflation averages might not be the best measure on Fed performance.  Volcker, for example, had high average inflation rates during his tenure, but inflation declined dramatically.  And inflation declined further under Greenspan. Overall, I consider the Chairmen who presided over the 1965 to 1980 period as having the worst records on inflation, while all the Chairman since 1980 have solid inflation records.  McCabe is a mixed bag.  Clearly inflation was volatile during his tenure, but the Fed was working in the context of the transition out of WWII.

Finally, this whole discussion presupposes that low inflation is always desirable and ignores the fact that the Fed has a dual mandate.  Monetary policy is about more than low inflation – it is about stable inflation in the context of the overall economic and financial landscape.  Bernanke’s battle hasn’t even been to contain inflation; his focus has been preventing deflation.  But putting these issues aside for the moment, it seems pretty clear that if the only metric that Corker cares about is low inflation, Bernanke has clearly delivered.

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