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Bernanke Reflects on Fed’s Aggressive Actions

In the first of a three-part discussion, Fed Chairman Ben Bernanke warned that jobless rates may continue to rise and discussed his fears of another Great Depression.

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    With that in mind, we asked a nonpartisan organization, Kansas City Consensus, to help us identify area residents with questions for Chairman Bernanke. They were pre-interviewed by NewsHour staff and selected by us. Our staff also helped Jim select questions submitted by our online audience.

    Here now is part one of our forum, "Bernanke On the Record" with Jim Lehrer, at the Federal Reserve Bank in Kansas City.


    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.

    Tell the chairman what you told our producer when she talked to you about your questions for the chairman.

    GWEN BAILEY, social worker: 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 a hundred 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. 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. And 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 will 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 penalties, fees, and so on.

    So, broadly speaking, financial stability, trying to keep the financial markets 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 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 or they may 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 this 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 interest 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 nonpartisan way, that we're doing 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 — 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 4-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 essentially the fourth branch of government," how do you react to that?

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