Federal Reserve Chair Ben Bernanke on Economy: ‘Far Too Early to Declare Victory’
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Transcript: Diane Sawyer Sits Down with Federal Reserve Chairman Ben Bernanke
Federal Reserve Chairman Ben Bernanke sat down with ABC News’ Diane Sawyer Tuesday to discuss the state of the U.S. economy and the challenges we still face on the road to recovery. Bernanke and Sawyer spoke on a wide range of issues including gas prices, the housing market and where the national unemployment rate is heading.
Here is a transcript of their conversation:
DIANE SAWYER: So you’ve been teaching the class. Just curious what– what’s– is there a question that made you stop and think the most as you’re teaching?
CHAIRMAN BERNANKE: Well– you know, I’m talk– I’m tackling– a big topic which is the role of the Fed in the financial crisis. And it was a good opportunity just to think through the– what happened in the last few years. And the theme of the lectures is that, you know, you can make sense of it all if you look to history. I– I was a student of the Great Depression as an academic and I think some of the lessons– the mistakes that were made– during the Great Depression are very helpful in thinking about our response to the– the recent crisis. And I think we avoided some of the most important mistakes.
DIANE SAWYER: And what’s the biggest less– difference in the lesson we have to learn from this recession and the Depression?
CHAIRMAN BERNANKE: Well, the Federal Reserve and other policymakers made, I think, two principle mistakes in the ’30s which led to such– a disastrous and deep– depression across the world. And the first was– monetary policy. The Fed did not ease monetary policy sufficiently. We had a deflation in the United States, prices were dropping at about 10% a year which is very unhealthy for an economy. And secondly the Fed didn’t do enough to stop the financial system from– from crashing. We had almost 10,000 banks fail in the United States in the 1930s. So I think those were the two big mistakes.
DIANE SAWYER: And as– Americans what’s the lesson we should take away from this recession?
CHAIRMAN BERNANKE: Well– again from the perspective of policy what we needed– what the Fed needed to do– was to use monetary policy constructively to help the economy recover and to do what was necessary to keep the– financial system stable and keep it from falling apart– which we did. And– I think we averted what would have been the– really terrible outcomes– like those of the 1930s. Now, for Americans– I think we need to take a look at our economy and think about the role of the financial system– when it’s gonna generate growth for our economy going– forward. And a lot of– questions have risen lately about– education, skills and do we have the skills that will both create– a more balanced income distribution to help people across the range of– of– occupations and– and areas to– to– earn better livings and also to compete internationally. So I think those are some of the areas that we’ll be having to look at as a country going forward.
DIANE SAWYER: Turning to the economy today, what is the word you would give American viewers, Americans out in the country about the economy now? Are we in a recovery? Is it sustainable? How strong is this recovery?
CHAIRMAN BERNANKE: Well, we are in a recovery. The economy’s been growing– for almost three years. And we’ve had some good news lately. We’ve– seen the unemployment rate come down. We’ve seen more jobs be created. And– consumer and household– and business sentiment have all improved, so that’s all positive, but–
DIANE SAWYER: Strong?
CHAIRMAN BERNANKE: –we do have a long way to go. I– I would say that we– you know, it’s– it’s far too early to declare victory. We have– still 8.3% unemployment, that’s– that’s too high. We’ve got a lot of people been un– out of work for more than six months.
DIANE SAWYER: The president said that the economy is strong and that it is– the recovery is speeding up. Do you agree?
CHAIRMAN BERNANKE: Well, the recent news has been good. But I think we need to be cautious and make sure this is sustainable. And– we haven’t quite yet got to the point where we can be completely confident that we’re on a track to full recovery.
DIANE SAWYER: You once used the phrase green shoots. Are they now what, stalks? Are they–
CHAIRMAN BERNANKE: Well, the–
DIANE SAWYER: –viable trees?
CHAIRMAN BERNANKE: I– I think they’re still shoots. We’re seeing some– again some good– good indicators. It’s great to see some jobs being created. It’s great to see unemployment come down the way it has recently. And there are a lot of other indicators in the labor market which are positive. But– again we’re still millions of jobs below where we were before the– recession.
DIANE SAWYER: You worried that people are getting too optimistic?
CHAIRMAN BERNANKE: Well, optimism’s a good thing. It– makes people go out and– you know, start businesses and spend and do whatever is necessary to get the economy going. But I think as policymakers we need to be– cautious and– and not– not change policy too quickly.
DIANE SAWYER: You must know that some people have written you’re Eeyore (UNINTEL) and that it’s time to be a modified Tigger.
CHAIRMAN BERNANKE: Well– you know, it’s– forecasting the economy is very tough. And we were somewhat too optimistic– early in the recovery. And we were disappointed by the pace of recovery. I think we have to be realistic. I think we have to tell people what we see and we have to set our policies in a way consistent with that. But– again I don’t want to deny that there has been some good news.
DIANE SAWYER: If– can Americans exhale about the fear of another rec– of another recession?
CHAIRMAN BERNANKE: Well, again it’s hard to make forecasts, but the Fed has been predicting moderate growth– you know, for the last three years and we’ve been– we’ve been right. There hasn’t been a double dip or a second recession. Right now I think the odds of it are pretty low. But– with forecasting you just never say never, you have to keep vigilant.
DIANE SAWYER: You don’t want to use the word strong?
CHAIRMAN BERNANKE: Not yet. Again labor market’s better, but– real growth, real economic growth– still kinda moderate. We’d like to see stronger growth which will guarantee that we keep making progress in the labor market.
DIANE SAWYER: A couple of things, you had a nice bounce in the stock market yesterday based on your speech.
CHAIRMAN BERNANKE: Well, we don’t pay attention much to day-to-day movements in the stock market.
DIANE SAWYER: Well, I just want to follow up on a couple of things though they seemed to have reacted to. They seem to feel that you are pretty much saying it’s guaranteed that till the end of– the end of 2014 that short term interest rates are gonna be kept near zero. Is that pretty– a guarantee, is that ironclad, that’s–
CHAIRMAN BERNANKE: No– we– we’ve never– issued a guarantee. We’ve said very clearly that that’s our best estimate, that– we’re trying to tell the public first of all, you know, how we see the economy evolving and if the economy does evolve that way here’s how we plan to react to that. But of course if the economy looks different, if– things get a lot stronger or a lot weaker we’ll have to change– have to change our plans.
DIANE SAWYER: What is the measure– what is the trigger that make you say we have to change our plans? Would it be– what kind of inflation concern?
CHAIRMAN BERNANKE: Well, we have to look both at growth and inflation. And both sides are our responsibility, our mandate to look at both sides. And we look at both sides. It’s a committee decision. We have– 17 people around the table, we meet eight times a year, we talk about the economy. We try to assess whether the economy is making sufficient progress, whether inflation is under control and what our tools are, w– are they effective? So it’s not something I can give, you know, sort of a precise– set of– indicators or precise set of conditions. It’s something that we’re gonna have to keep thinking about and evaluating as we go forward.
DIANE SAWYER: Unemployment. You said three years ago that you th– in two– in 2010 you said you thought it’d be four to five years before we saw normal employment in this country, normal unemployment number in this country, so that would take us to another three years?
CHAIRMAN BERNANKE: Well, it still could be a few more years. We’re at 8.3– before the—recession, normal was probably between 5 and 6%, which is– a healthier level of unemployment. Depending on how fast the economy grows we could move towards that more quickly or more slowly. But– unless we get faster growth than we’ve been seeing it is probably gonna take a while still.
DIANE SAWYER: So another three years or five years?
CHAIRMAN BERNANKE: It could be– it could be a few more years, but remember we’re making progress the whole time. And so things are getting better and– that’s at least– moving in the right direction.
DIANE SAWYER: So are you sticking with the three years?
CHAIRMAN BERNANKE: Well– you know, we can make guesses–
DIANE SAWYER: Or have you revised it to a little more optimism?
CHAIRMAN BERNANKE: –we can make guesses. No, I– I think we’re still sort of in that general vicinity. But it’s very imprecise. I don’t want to convey the sense that we know exactly when– things will be back to– completely to normal.
DIANE SAWYER: Do you hold up real hope that by the end of this year we’ll be below 8%?
CHAIRMAN BERNANKE: Well, our forecasts are that– we’ll be close to 8%, something like that. But that depends very much on how fast the economy grows. If it continues to grow at– at a moderate rate– sort of– 2-2.5%– then we might not make much more progress this year. If it picks up, which is a possibility– we could do better. Obviously we hope– to make more progress. But– you know, we’re not– again as I said before we’re– we’re cautious.
DIANE SAWYER: Another quantitative easing on the table, always possible?
CHAIRMAN BERNANKE: Well, we don’t take any options off the table. We don’t know what’s gonna happen in the future and we have to be prepared to respond to however the economy evolves. But again we have 17 people around the table. We look at the economy– comprehensively and– and review it– at every meeting and we try to assess, you know, how much progress we’re making and what else we can do that will help us achieve both the growth we want, the reduction in unemployment we want, but also maintain the price stability, the low inflation which is the other part of our mandate.
DIANE SAWYER: As you know there’s been a rising concern about income inequality in this country and also about the feeling that the banks have been given special circumstances, as somebody said, the rules were rigged in favor of the bank. And– and– an economist said to ask you this, that you know, you gave a lifeline to the banks. What can you do to get them to start lending to small businesses?
CHAIRMAN BERNANKE: Well– you know, we– we did what a central bank is supposed to do is we did what was necessary to stop the financial crisis. We were facing a global financial meltdown which would have brought down the world economy. And that was just something we couldn’t allow to happen. And it wasn’t a question of helping banks, it was a question of helping everybody, the whole economy. Now, going forward– you know, we’ve– we’ve imposed a lot of new rules on the banks. And we’re–
DIANE SAWYER: Which they don’t like.
CHAIRMAN BERNANKE: Which they don’t like. And you know, we’re gonna be much tougher. And we have– very importantly–
DIANE SAWYER: Tougher still?
CHAIRMAN BERNANKE: We continue to be tougher and we’ll continue to– add– the rules necessary to make sure that they’re– operating in a safe manner, in a way that doesn’t endanger– our economic system. In terms of lending we’ve emphasized to the banks the importance of making loans to– to good borrowers, that’s– that’s the reason the financial system’s so important because– our system lives on credit.
DIANE SAWYER: Is there more you can do? Is there anything more you can do?
CHAIRMAN BERNANKE: Well, we’re doing– a lot and we’ll do more. I mean, we are– meeting with the banks regularly. We have our examiners– looking at their lending and do– we’re doing everything we can to make sure that we as examiners aren’t artificially constraining their– their lending. And we are seeing some progress. For example– lending to medium and larger businesses is– is– is definitely up. And we’ve seen modest improvement at small business level, as well.
DIANE SAWYER: Gas prices?
CHAIRMAN BERNANKE: Well, gas prices are– are a major problem. They’re obviously– a hardship for lots of people. It must be awfully frustrating to get a small raise at work and then have it all eaten by a higher cost of commuting. From the economy’s point of view they’re– a moderate risk– they’ll–
DIANE SAWYER: Moderate?
CHAIRMAN BERNANKE: Moderate, I would say.
DIANE SAWYER: But threatening the recovery?
CHAIRMAN BERNANKE: At this point– at this point I would say it’s still moderate. We’ll see a little bit higher inflation the next few months because of the higher gas prices. And we’ll see consumers– with a little l– less– income to spend. And that will also be– a bit of– a hit on growth. But at this level we don’t think yet that– particularly given the other good news we’ve seen in– in labor markets and so on– we don’t think it’s gonna be anything that’s gonna– stall the recovery. Now of course, you know, we have to watch what’s happening there. The Middle East is very unpredictable– lots of things happening with respect to Iran and so on, so you know, we obviously– need to be– very attentive to that. But to this point while it certainly is a major hardship for lots of people– we don’t see it as really endangering the– the economic recovery.
DIANE SAWYER: You have real hope they’ll come down after a month if there’s no Israeli/Iran attack?
CHAIRMAN BERNANKE: Well– there’s a seasonal pattern to gas prices. You know, gas prices tend to rise– during the driving season. So probably between now and the next couple months up to July 4th or so we’ll probably see prices go up some– somewhat further. After that– if oil prices stay where they are or come down as– some people think they will– we should see some relief. But that’s– that’s a guess.
DIANE SAWYER: I’m curious about you because in this political campaign season you have been elevated in some of the Republican debates to a central figure. Newt Gingrich has said, “I think he’s been the most inflationary dangerous and power-centered chairman in the Fed history.” Governor Perry said that if you’re allowing it to be used for political purposes it would be almost treasonous and talked about what would happen if you came to Texas. Even Mitt Romney says, “I’d be lookin’ for somebody new.” Does that affect you–
CHAIRMAN BERNANKE: Well– I went to Texas shortly after and had a great visit. So that’s– that’s neither here nor there. I mean, the main thing is that politics is politics. And the Federal Reserve is nonpartisan. Our job is to do the right thing for the economy irrespective of politics. And– we’re not paying any attention to election calendars or political debates. We’re lookin’ at the economy. We want to make the right decision. We want to do it without political pressure, and– that’s what we’re gonna do.
DIANE SAWYER: Well, that’s– it’s one thing to do that professionally, it’s another personally.
CHAIRMAN BERNANKE: Well, again I– it sort of comes with the job. When my predecessor, Paul Volcker, was here in the 1980s and was doing tough but necessary things to bring inflation down– he came under lots of criticism. And– but he did what he had to do and we’ll do what we have to do.
DIANE SAWYER: You’ve also talked about Congress and you had a white paper at one point– do you feel that what some people have called the toxic paralysis on Capitol Hill is deeply endangering the finances of the country, of the financial stability of the country?
CHAIRMAN BERNANKE: Well, we have expressed– at the Fed, not just myself and my colleagues have expressed a lot of concern about the long run fiscal sustainability of– our economy and our federal budget. And that’s something that’s gonna take a lot of political courage and– creativity and– and leadership to– to tackle. And– so far it hasn’t really happened. But– you know– at the end of– this year there’s gonna be some big changes in the existing law. The Bush tax cuts will expire, lots of things are gonna happen. And that’ll be a moment where I hope that– Congress and administration will get together and– and make some tough decisions about how to bring our federal budget back to– a more reasonable position.
DIANE SAWYER: Do you ever throw up your hands?
CHAIRMAN BERNANKE: Well, politi– again politics is tough. You know, if– if you’re a student of history you go back and read things that Alexander Hamilton and Thomas Jefferson were writing about each other and it’s– pretty amazing. So there’s often a lot of– a lot of partisanship and a lot of– of– rhetoric. Important thing is whether people can get together and do what’s necessary for the country, and we’re urging them to do that.
DIANE SAWYER: Are you absolutely gonna serve your whole term till January 2014?
CHAIRMAN BERNANKE: Well, right now I’m– you know, I’m not thinking about the future. I’m just focused on– what we can do to– to help– meet our mandate, which is– growth– l– bring unemployment down and– and keep prices– stable.
DIANE SAWYER: But is there anything that ’cause make you think of stepping aside?
CHAIRMAN BERNANKE: I– this is– these are hypothetical contingencies. I’m not gonna worry about them now. Again I’m just really focused on trying to get done this challenging task.
DIANE SAWYER: So if– a president, whoever it is in 2014 asks you to stay–
CHAIRMAN BERNANKE: Well–
DIANE SAWYER:—would you think about it?
CHAIRMAN BERNANKE: –I’ll– I’ll– I’ll think about anything, but– basically– it’s just– too hypothetical at this point.
DIANE SAWYER: Do you sleep better than you did a year ago?
CHAIRMAN BERNANKE: I have been sleeping better. Things are– are– are s– are moving in the right direction. As I said we’ve seen some– some positive developments recently. The financial system looks stronger and more stable and– and we are getting more lending. Some of the issues related to Europe where there’s been a lot of financial stress have– become a little bit less worrisome lately although they still have some very important long-term challenges. And so yeah, I’m– I’m sleeping a little better. But– again I think it’s really important not to be– complacent. I– we have a long way to go, a lot of work to do, and– and we’re gonna keep doing that.
DIANE SAWYER: So the number one thing that keeps you up at night?
CHAIRMAN BERNANKE: Well, again– we have– 40% of the unemployed have been out of work for more than six months. Those people are obviously facing a lot of hardship– their skills could be eroding– they may never be able to get back into the labor force at the same earnings level or same occupation that they had when they– when they lost their jobs. So I think it’s important for us to support the recovery and help people get back to work. At the same time, again every central bank– pays a lot of attention to inflation. And we gotta make sure that whatever we do that we maintain the confidence of the public and the markets (UNINTEL) keep inflation– low and stable.
DIANE SAWYER: You said at one point in an– in 60 Minutes interview awhile back that you felt you could control it 100%.
CHAIRMAN BERNANKE: No, I didn’t say that. What I– the question was– did we have confidence in the tools that we have to unwind the large balance sheet increases for example that we’ve done. And– and I– I do have 100% confidence that when the time comes to unwind– the actions we’ve taken– that we would be able to do that. Now, keeping inflation low and stable is gonna require more than just the technical tools. It’s gonna require making a judgment about how much support the economy needs and when is the right time to begin withdrawing that support. And that’s a problem that central bankers always face whether you’re in a situation of non-standard tools or– or normal monetary policy tools. So– no, I’m not guaranteeing that the inflation will be exactly on target, but we’re gonna do our very, very best to make sure it is.
DIANE SAWYER: Someone has written that they believe that you have had the longest sustained civil service in crisis (LAUGH) of anyone in modern times.
CHAIRMAN BERNANKE: Well– it’s true–
CHAIRMAN BERNANKE: It– it does feel like it sometimes. I was– you know, the only principle policymaker who bridged the two administrations. I was appointed as you know by– by President Bush– and then I was reappointed by President Obama. And so I– I was there for the transition, and– I was the continuity over that period. And– yes– this has been a very serious– crisis followed by a tough– recession and recovery. And we– you know, it’s been a long– been a long haul certainly.
DIANE SAWYER: What do you say to your students or would you if they asked you– in– in sheer human terms about what lessons you’ve learned about crisis, dealing with crisis, staying steady in crisis?
CHAIRMAN BERNANKE: Well, staying steady’s important– projecting– clarity of purpose and– and– consistency is very important. But you know, most of the time central bankers are very conservative and they follow orthodox procedures, and I think that’s entirely appropriate. But sometimes– you’re in a situation where you need to do something more dramatic. And– during the crisis– not just myself, but– our board and– and many of our senior staff worked, you know, very long hours trying to figure out new solutions, new approaches that would help us– stabilize the system and avoid– a much worse– outcome than we’ve had.
DIANE SAWYER: Ever feel it might be too much for one person, for a human?
CHAIRMAN BERNANKE: Well, it’s– I think a big misconception about the Fed that– the chairman of the Fed is in some sense the only decision maker, the only actor, that’s absolutely not true. It wasn’t true for Greenspan, it wasn’t true for Volcker and it’s certainly not true for me. I have a very—teamwork-oriented approach– both with my fellow policymakers on the Federal (UNINTEL) Committee. And– I take a lot of solace from the fact that– the Fed staff– professional staff is– of, you know, second to none as far as I’m concerned. And they’ve worked incredibly hard and provided lots of ideas and lots of– professional– competence. And they’ve just made the whole thing work much better.
DIANE SAWYER: I– I want to just make sure I cover housing. And we’re seeing these mixed signals on housing, housing prices still low, but we are seeing some– up-tick in new house sales and also existing house sales. Have we hit bottom on housing?
CHAIRMAN BERNANKE: Well, housing remains– a big concern for us. Normally in a recovery you would see housing growing much more quickly, construction– housing related industries. So far housing is– kinda still pretty flat. We have seen a few signs– of– of progress– a few extra permits for construction. We see more construction in multi-family– housing. More people are moving into apartment buildings for example. So there’s a bit of– a bit of a green shoot there if you– if you will. But– you know, we’re not really yet in a full-fledged housing recovery. And you know, that will be part of– the full recovery of the economy.
DIANE SAWYER: Can you say to the people back in– by the Pee Dee River, the little Pee Dee River in Dillon, South Carolina that the American dream is intact?
CHAIRMAN BERNANKE: Well, I think so. I– I really– I really do believe that. The– we have the strongest economy in the world. We have tremendous assets– great universities and– and research. We have– a large and diverse economy with a very skilled workforce– lots of entrepreneurship– strong capital markets, everything you need to have– have growth. We have a lot of problems. We’ve got education issues, we’ve got health issues, we’ve got– fiscal policy issues. But we had those before the crisis. And I– I think that– our economy’s gonna recover and– and c– and continue to grow and be– a world leader. But we’ve got a lot of challenges, and there’s no– there’s no covering up that fact.
DIANE SAWYER: How will you know– how will we know when you believe the economy has passed all the thin ice?
CHAIRMAN BERNANKE: Well, you’ll be able to tell by what– what I say. Again at this point– I’m encouraged, but still cautious. As– as things– continue to improve, if they improve at the rate I hope that they will– we’ll obviously– change our forecasts– and– communicate that we think that things are normalizing.
DIANE SAWYER: And at this point you still feel– feel the unemployment situation is cyclical and not structural and– and spiraling in some China syndrome spiral?
CHAIRMAN BERNANKE: Well, all of these factors that people point to– about– you know, globalization and off-shoring and all those things, in the first place those things were all working before the– the crisis and we had unemployment that was much lower than we have today. And then– and then secondly, you know– there’s actually been some tendency to reverse off-shoring, to do on-shoring– lot of jobs– that have gone to China are– have actually started to come back. And the U.S. is very competitive, and– so I have some hopes that– you know, that in fact– we’ll see more job growth coming from– changes in where– firms decide to produce.
DIANE SAWYER: Thank you so much, Mr. Chairman.
CHAIRMAN BERNANKE: Thank you.
DIANE SAWYER: Great to have the chance to talk to you.
Note: This transcript has been edited for clarity and brevity.
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