U.S. Economic Performance Under Seven Different Fed Chair-Persons

October 3, 2017

There have been only seven leaders of the Federal Reserve System since April 1951, a period spanning two-thirds of a century.

William McChesney Martin was appointed by Truman and served from April 2, 1951 when his age was 44 until January 31, 1970 when it was 63.  His father had been a central banker, but Martin’s prior experience had been mostly on Wall Street with a spell at the Treasury.  He defended the Fed’s independence and had an eclectic approach to policy-making.

Arthur Burns was appointed by Nixon, served for eight years until January 31, 1978 when he was 73.  Burns was an economics professor at Columbia University specializing in business cycle theory and also spent three years chairing the Council of Economic Advisers.  He served in the era when Phillip’s Curve theory held much influence, a view that unemployment could be reduced by accepting a little more inflation.  Fed independence weakened under him. In a quest for a little faster growth, the seeds of inflation were sown.

G. William Miller was appointed by Carter when 54 but served just 17 months from March 8, 1978 to August 6, 1979. Miller is one of several examples were success as a businessman didn’t translate into effective public services. He arrived at the Fed with a corporate background at Textron, where he had climbed to the rank of CEO.  During his stint, a vicious cycle of accelerating inflation and a depreciating dollar developed.  What’s not remembered is that growth in jobs and real GDP was faster than when the other men chaired the Fed.

In the profession of economists, Paul Volcker is considered a legend without peer among former Fed leaders. He slayed inflation, refusing to cave in to political pressure and restored Fed credibility and independence.  He served for eight years until August 11, 1987 after being appointed by Carter.  Volcker was schooled in economics at Princeton and Harvard and had a varied career as an economic analyst, a commercial banker, a Treasury under-secretary and president of the New York Federal Reserve.  Volcker was 51 when first appointed.  As chairman of the Board of Governors, he beat inflation by undertaking quantitative tightening and abandoning an interest rate target.  As the central bank reabsorbed liquidity, market-determined rates soared above 20% on the shortest maturities.  There were two recessions in rapid succession in the early 1980s, and the Fed maintained its monetarist experiment well into the second one.  The post-war record-high jobless rate of 10.8% was reached late in 1982, and the Latin American debt crisis constituted further collateral damage.  The performance of the dollar and of equity prices under Volcker topped his predecessors. Two decades after he stepped down in the period during and after the Great Recession, Volcker returned to the limelight as the leading proponent of tighter regulation of the financial services, arguing that the sector’s exception role in the economy necessitated closer government overnight that other industries.

Alan Greenspan, an economist by training, was appointed by Reagan and served nearly as long as Martin from August 8, 1987 to January 31, 2006.  He also took an eclectic approach to policymaking, earning the affectionate title of maestro for his instinctual knack for taking actions that were at odds with conventional thinking yet seemed to work out.  Like Burns, Greenspan had chaired the Council of Economic Advisers for a few years, but his main background was as an economic consultant and businessman.  Despite a willingness to look at many different things for policy guidance, Greenspan was an ideological free marketeer and a believer in limited government.  He defended not responding to asset price bubbles.  During his years running the Fed, Greenspan aged from 61 to 79.  He is actually two years older than Volcker. In retirement from the Fed, Greenspan’s reputation has suffered because of the severe subsequent economic problems and his perceived responsibility in pursuing pro-growth policies and lax regulation that created a business environment that made the sub-prime credit crisis happen.

Ben Bernanke, like Arthur Burns, had an academic background in economics and served a stint on the Council of Economic Advisers.  He also played a lead and controversial role in promoting the ultra-easy monetary policy in an earlier spell as one of the Fed Board governors.  Bernanke was schooled at Harvard and MIT and a professor at Stanford and Princeton.  He was appointed by Bush43 at the age of 52 and began his first term as Fed chairman on February 1, 2006.  He came to the job with a reputation as one of the country’s top monetary economists and perhaps the preeminent expert on the Great Depression, yet he was late to realize the severity of the financial crisis and the magnitude of its threat to the overall U.S. and world economies. For many months in 2008 even after the U.S. entered a deepening recession, the federal funds rate was kept steady. To his credit, Bernanke acted very decisively and creatively once he grasped how bad economic conditions had become. With fiscal policy in a funk, the Bernanke-led Federal Reserve was all the difference between a Great Recession or another Great Depression.

Janet Yellen is the fifth person from the last six Fed Chairs with extensive schooling and prior work experience as an economist.  Her under-graduate degree was at Brown, and she earned a Ph.D. from Yale. She has taught economics at Harvard, the London School of Economics, and U.C. Berkeley. She chaired the presidents Council of Economic Advisers, served as President of the Federal Reserve Bank of San Francisco, and Vice-Chair of the Fed Board of Governors before assuming the position of Fed Chair on February 3, 2017.

Yellen has led the Fed during a period of hostility to the U.S. central bank from Congress and the current occupant of the White House. She has been an ardent defender of bank regulation and a data-driven gradual withdrawal of the very accommodative stance she inherited. Her four-year term as chair ends in four months, and press reports suggest that her chances of getting reappointed are well below even. That should come as little surprise. She was appointed by President Obama. She’s a woman and 71 years old. Trump heavily criticized monetary policy when he ran for president and wants to deregulate financial services. He doesn’t meet routinely with her. She represents the two coasts and has an elitist resume. And the U.S. economy has done very well in several respects as the examination of five U.S. vital economic signs demonstrates.

The table below compares the annualized percentage changes of five vital economic signs during the chairmanship of each of the above six Fed leaders.  Bernanke’s results are of course an unfinished body of work comprising only his first 3-1/2 years at the task.  The five criteria examined are Dow Jones Industrial Average, the dollar’s value against the mark before 1999 and euro after 1998, non-farm payroll employment, consumer prices, and real GDP.  The length of each person’s term is also noted in number of months served.  Bernanke and the country have been through a tough patch, not all of his making.  Not surprisingly, his years so far scored last in equities, jobs, and GDP growth.

% p.a. DJIA US$ Jobs CPI GDP # mos
Martin +5.9% -0.7% +2.2% +2.1% +3.8% 225
Burns +0.4% -6.6% +2.2% +6.5% +3.1% 96
Miller +9.0% -9.6% +4.0% +10.0% +5.0% 17
Volcker +15.4% +0.4% +1.6% +5.6% +2.8% 96
Greenspan +7.9% -0.8% +1.5% +3.1% +3.1% 221














Under Janet Yellen’s stewardship, growth in jobs has been faster than it was under Bernanke, Greenspan, and Volcker. Real GDP has expanded almost twice as fast in the Yellen era as such did When Bernanke chaired the Fed. The Dow Jones Industrials Average has sustained a double-digit rate of appreciation, something not done under Bernanke, Greenspan, Miller, Burns or Martin. CPI inflation has on average been lower than during the six previous Fed chairmanships. In fact, it has been too low. Finally, the dollar against Europe’s dominant currency, now the euro, has appreciated by 3.7% per annum. Only under Volcker did the dollar on balance even rise, and the pace of appreciation from the day Volcker arrive to the day he stepped down was merely 0.4%. One might even argue that no other Fed chair has achieved the all-around U.S. economic success that Janet Yellen has managed. In the upside-down state into which the United States has wandered, this broad competence may in fact be the main reason that Yellen seems unlikely to be reappointed.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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