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At a forum in Kansas City, Mo., Federal Reserve Chairman Ben Bernanke discussed the central bank's actions in handling the economic crisis, saying he did not want to be the Fed chief who "presided over the second Great Depression." Here is the full transcript of the forum, which was moderated by Jim Lehrer.
Good evening. I'm Jim Lehrer from the Federal Reserve Bank in Kansas City, Mo., and I welcome you to this special PBS NewsHour forum: "On the Record with Bernanke" — Ben Bernanke, the chairman of the Federal Reserve. His role in matters financial and economic, most particularly in the immediate past and future, is paramount, and that is what he will be talking about tonight with a group of people from and around Kansas City.
The nonpartisan organization Kansas City Consensus helped us identify and select them. Those who will ask questions are sitting there in the center section directly in front of Chairman Bernanke and me. They have been pre-interviewed by NewsHour staff members about what they have on their mind to ask the chairman. I also have a few questions that have been emailed to us at our Online NewsHour site. And we'll get some perspective-setting help from NewsHour economics correspondent Paul Solman.
Mr. Chairman, welcome, sir.
BEN BERNANKE, chairman, Federal Reserve: Thank you.
Underlying many of the questions that these folks have are questions that are basic about the Federal Reserve itself. For instance, I'd like for Gwen Bailey to stand up.
Ms. Bailey, tell the chairman – get your mike, please. Tell the chairman what you told our producer when she talked to you about your questions for the chairman.
My name is Gwen Bailey. I'm a social worker with Visiting Nurse Association. And my particular interest is exactly what is the Federal Reserve? I don't have a clue what they do, how they impact our lives, and that is why I was very interested to be selected to participate in this forum.
Gwen, you've got a good place to start there. The Federal Reserve is an independent government agency also called the central bank. It was founded about 100 years ago. It was founded actually in the beginning to try to address financial crises. There had been a panic in 1907 and that started the process by which Woodrow Wilson created the Federal Reserve.
So throughout our 100-year history, we have been very much involved in dealing with financial crises, trying to address situations just like we have now, when the financial markets are in disarray and they're affecting the economy.
The Fed has some other important functions as well. The Fed makes monetary policy, and what that means is that we, including President Hoenig here from Kansas City, meet and set short-term interest rates. We set short-term interest rates in order to try to keep the economy on track. We have a mandate from the Congress to move interest rates up and down as needed to try to promote employment and to keep prices stable, keep inflation low. So monetary policy, moving interest rates around is very important.
We have lots of other things we do as well. We work with other supervisors to try to make sure the banking system is stable. We've had a lot of work to do on that in the last couple of years. And many people don't know, we also do consumer protection. So if you look at your credit card bill, you'll see the periodic statement. The structure, the lines, and the way that's organized was determined by the Federal Reserve and the Federal Reserve sets a lot of the rules associated with how credit cards can be charged, the kinds of the penalties, fees and so on.
So broadly speaking, financial stability, trying to keep the financial market stable; monetary policy, interest rates to move the economy into a higher pace or a lower pace; banking supervision; and consumer protection. And so a whole range of financial economic issues.
Thank you, Ms. Bailey.
Just to follow up, Mr. Chairman, when you say independent agency, define independent.
We are an agency of the government, but we're – within the government we need to have some independence from Congress and the administration, and the most important area is monetary policy. There's a lot of evidence that when politicians make monetary policy, you don't get good results. Politicians have a short-term horizon. When they want the central bank to print money to pay for the government deficit, either one of those things is going to create a lot of inflation. What we've learned over time, and there is a lot of evidence to support this, is that when the Central Bank is allowed to make monetary policy with the interest – the long-term interests of the economy in mind, without the interference of the administration or the Congress, you get much better results. You get low inflation and you get good growth. This has been seen all around the world. So we're very, very sensitive to this issue. We want to be very sure that when we make monetary policy that we're doing it in a non-partisan way, that we're going it based on what's good for the economy and that we're not being told what to do by the president or the Congress.
So when you get up in the morning, who do you go to work for? Who do you feel you're answerable to?
I'm answerable to the American people. I was appointed by the president to a 14-year term as a governor but a four-year term as the chairman of the Fed, and I was approved – I was confirmed by the Senate. So I obviously go through a political process to be appointed, but again, the Federal Reserve governors, the Board of Governors, the seven people who are at the head of the Fed in Washington, are generally professionals, technical people, people who are not lifetime politicians, people who wanted to serve the country using their knowledge in one of these areas that I was talking about like banking or monetary policy.
When somebody says, oh, the Fed is the – essentially the fourth branch of government, how do you react to that?
That's a tremendous exaggeration. As I said, the Fed needs independence in making monetary policy, and that's good for everybody because it helps keep inflation low. But we are very accountable. We have to report regularly and frequently to the Congress. I was – just this last week I had to testify – maybe you saw me on television – I had to testify before both the House and the Senate explaining our policies, what we're doing, and reporting to the Congress and the American people about our ideas, our decisions, and how they affect the economy.
And again, we are subject to the appointment process, and Congress can change the rules as well. So it's not a constitutional type situation. It's one where our independence has to be won every day, if you will, in that we have to show that we are producing good results and doing so without intervention or interference from other political bodies.
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