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Written by: Daniel Caponetti
The Federal Reserve System has taken substantial public criticism recently stemming from its role in the severe global economic crisis of the past few years. With this in mind, the Economics Department brought in Dr. Jeffrey C. Fuhrer, Executive Vice President and Director of Research at the Federal Reserve Bank of Boston, into Wilder Pavilion to address the Bentley community on October 6.
The executive wasted no time in defending his employer, but also spoke at length about the policy decisions of the Fed, the global recession, and the future of our economy.
Fuhrer’s evaluation of the causes of the recession, as well as the Fed’s response, led to the conclusion that the Fed “did okay” given the harsh circumstances, and that the worst may be over for the U.S. economy.
Dr. Fuhrer started with a few graphics showing modest improvements in the housing sector, including increases in the number of housing sales and home prices, suggesting that we may be on the cusp of economic recovery. Other graphs showed that wage growth and job creation remain stagnant, signifying that the recovery will be a gradual one.
The cause of the economic crisis was the center of Fuhrer’s speech. He listed a number of contributors to the crisis on his PowerPoint slide, but emphasized real estate and lending, verbally, as the most significant.
While he mostly approves of the actions taken by the Fed in combating the crisis and believes the actions were successful, he did blame the nation’s central bank, as well as other regulatory agencies, for not cracking down on lenders who were too willing to provide risky mortgages to eager borrowers.
Moving into his expertise, Dr. Fuhrer described the Fed’s response to the crisis. He cited monetary policies such as “Term Auction Facility” (TAF) and “Commercial Paper Funding Facility” (CPFF) aimed at stimulating short-term liquidity in lending, as well as other policies with long-term, credit solutions. Dr. Fuhrer proved the effectiveness of these measures by saying, “Short term funding is nearly back to normal.”
Transitioning from pre-recession, to present action, Fuhrer switched his tone to the future ahead.
Economists disagree sharply on whether the U.S. economy faces concerns of inflation or deflation in the near future.
“My sense is that while there are concerns on both sides, I am more concerned about inflation slipping a bit on the low side,” said Fuhrer.
He further explained that inflation has declined to 1.3% over the past twelve months, 2.7% in the time preceding that, and had no guess as to how low it may fall in the future.
Before opening the floor to questions, Fuhrer concluded by talking about the communication, or lack thereof, between the Fed and the public. He admitted that the Fed failed to illustrate what they were doing and why they were doing it during the crisis.
Officials like Chairman Ben Bernanke, and Fuhrer himself are making public appearances and interviews to inform the public on what happened over the past few years.
The Fed looks to improve transparency in the future with proper use of their website to relay current information of monetary policies for all to see.
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