US Federal Reserve marks its centennial

There were no balloons or party hats but if you’re a Fed watcher, there was no bigger deal this week than the ceremony on Monday marking the centennial of the US Federal Reserve. It was the biggest gathering of current and former senior Fed officials in the bank’s history.

The most interesting part of the ceremony was what former Fed chairmen Paul Volcker (1979-87) and Alan Greenspan (1987-2006), and current Chairman Ben S Bernanke (2006-present) had to say.

In 2008 Volcker had seemed to take a shot at Bernanke in a speech about the Fed’s $29 billion emergency loan that year that paved the way for JPMorgan Chase’s takeover of Bear Stearns. Volcker, 86, made no mention of that episode on Monday, but he seemed to toss a garland in Bernanke’s direction when he once again mentioned “strong actions, sometimes testing the limits of its legal authority,” but this time added that those actions by the Fed “rested on a sense of integrity — integrity it’s achieved and maintained over the years in the sense that it was able to act free of partisan political passions.”

Greenspan, 87, focused his brief remarks on the biggest one-day collapse in stock prices in US history on October 19, 1987, shortly after he took office. He said “the days that followed that crash were truly frightening.” Interestingly, Greenspan said that the crash itself, in which the Dow Jones industrial average fell nearly 23 per cent, “is a distant memory of no ongoing interest.” But it remains of intense interest to scholars of financial-market instability, who fault Greenspan for putting too much faith in the self-stabilising properties of markets.

Bernanke said he keeps in his office a two-by-four length of wood that was mailed to Volcker as part of a protest by builders against his tight-money inflation-fighting policies, which depressed housing demand. He said the wood “communicates some distinctly unfavourable views of high interest rates and their effects.” Of course, with the federal funds rate at 0 to 0.25 per cent, Bernanke is more often criticised for keeping rates too low, not too high.

The birthday party was a few days early because it wasn’t until December 23, 1913, that president Woodrow Wilson signed the Federal Reserve Act. Presumably, the Fed didn’t want to wait until nearly Christmas Eve to celebrate.