Fed Chair Ben Bernanke to leave complicated legacy

U.S. Federal Reserve chairman Ben Bernanke may have presided over the worst recession in generations, but is leaving the world’s most powerful economic position on a more positive note.

The U.S. economy is rebounding; giving Bernanke confidence this week to further cut the country’s economic stimulus program.

It was his final act in an eight-year tenure that began when the U.S. economy appeared strong, then tanked, and has been crawling its way back ever since, all under Bernanke’s watch.

History will soon judge his leadership role through one of the world’s most volatile economic periods.

“I think his legacy will be complicated,” BMO Capital Markets economist Douglas Porter says of the outgoing Fed chair.

Already there are questions about whether he made the right decisions heading into the 2008-09 financial crisis, but Porter doesn’t believe those will tarnish his reputation.

“The lingering question is the aftermath of the crisis and, on that part, the jury is still very much out,” says Porter.

Bernanke has been aggressive by tapering the bond-buying program, known as quantitative easing, but Porter says "it will be a few years before we can properly judge whether his post-crisis policy was a success or not.”

Recall former Fed chair Alan Greenspan left the role in 2006 as a monetary policy rock star. His stellar reputation was questioned during the recession, although Porter believes history will be kind to Greenspan overall.

Bernanke’s final Federal Open Market Committee meeting this week marked “the end of an area,” said CIBC economist Peter Buchanan.

“Bernanke, a keen student of the Great Recession, was the right person for troubled times,” Buchanan wrote in a recent note.

Buchanan cited stronger employment levels, a housing recovery and increased investment in the U.S. as signs the world’s largest economy is on the right track.

“That doesn’t mean the Board can afford to rest on its laurels,” Buchanan said.

Janet Yellen will replace Bernanke as the first woman to chair the Fed, a position Canadian economist Sherry Cooper called “arguably, the most important economic policy job in the world.”

“The job for Yellen is to get things back to normal,” says BMO’s Porter. “She has to find the right balance … without causing any major upset for the economy or financial markets. That is going to be a tough job to do.”

Bank of Canada governor Stephen Poloz will be watching the transition carefully, as will other central bankers around the world.

Canada didn’t experience the same severe downturn in the U.S., but the Bank of Canada is struggling today with low inflation and economic growth that is more sluggish than it is south of the border.

“Even though Canadian economy is growing slower than the U.S. I would say overall we are in a better place,” says Porter.