Interesting, in any case.
At WSJ, "Years of Fed Missteps Fueled Disillusion With the Economy and Washington":
Once-revered central bank failed to foresee the crisis and has struggled in its aftermath, fostering the rise of populism and distrust of institutions.Keep reading.
In the past decade Federal Reserve officials have been flummoxed by a housing bubble that cratered the financial system, a long stretch of slow growth they failed to foresee and inflation persistently undershooting their goal. In response they engineered unpopular financial rescues, launched start-and-stop bond buying and delayed planned interest-rate boosts.
“There are a lot of things that we thought we knew that haven’t turned out quite as we expected,” said Eric Rosengren, president of the Federal Reserve Bank of Boston. “The economy and financial markets are not as stable as we previously assumed.”
In the 1990s, a period known in economics as the “Great Moderation,” it seemed the Fed could do no wrong. Policy makers and voters saw it as a machine, with buttons officials could push to heat or cool the economy as needed. Now, after more than a decade of economic disappointment, the central bank confronts hardened public skepticism and growing self-doubt about its own understanding of how the U.S. economy works.
For anyone seeking to explain one of the most unpredictable political seasons in modern history, with the rise of Donald Trump and Bernie Sanders, a prime suspect is public dismay in institutions guiding the economy and government. The Fed in particular is a case study in how the conventional wisdom of the late 1990s on a wide range of economic issues, including trade, technology and central banking, has since slowly unraveled.
Once admired globally for their command of the economic system, central bankers now are blamed by the left and right for bailouts during the financial crisis and for failing to foresee and manage forces suffocating the global economy in its aftermath.
Populist protest movements called “Fed Up,” “End the Fed” and “Occupy Wall Street” lashed out at the bank’s policies, and in the case of End the Fed, its very existence. Lawmakers of both parties want to subject it to more scrutiny or curb its powers.
David Einhorn, founder of the hedge fund Greenlight Capital, cites the fable of the ant and the grasshopper, in which a famished grasshopper begs a thrifty ant for help in wintertime after failing to stockpile food during warmer weather.
“We had the grasshoppers party from 2002 to 2007 and winter came and the Fed bailed them out,” said Mr. Einhorn, referring to financial firms and individuals who lived above their means. “Now the ants are pissed.”
The Fed’s struggles will be on display from Friday to Sunday when it gathers for an annual retreat in Jackson Hole, Wyo. On issues of growth, inflation, interest rates, unemployment and how to fight a recession, basic assumptions inside the central bank’s complex computer models have been upended.
“I certainly myself couldn’t have imagined six, seven years ago that we would be employing the policies we are now,” Fed Chairwoman Janet Yellen said to a packed ballroom in New York earlier this year. She lamented the government has leaned so heavily on the Fed to stimulate the economy while tax and spending policies were stymied by disagreements between Congress and the White House.
Many Fed officials believe—and private economists agree—their responses to the crisis helped avert a second Depression, outweighing any unfairness in the bailout process. Fed leaders believe low rates helped, too. “Inflation would be lower and unemployment higher now by noticeable amounts had we not employed those policies,” Ms. Yellen said in March.
Regardless, confidence in the central bank’s leadership has dropped. An April Gallup poll found 38% of Americans had a great deal or fair amount of confidence in Ms. Yellen, while 35% had little or none. In the early 2000s, confidence in Chairman Alan Greenspan often exceeded 70%...