Opinions about the Federal Reserve’s continued efforts to support the economic recovery are not hard to come by. Some people have told me that they believe the current policy path is too accommodative. Others have said they think we are not being accommodative enough. As I have often said over the past few years, we are facing a very unusual and uncertain economic environment, so it is no surprise that views vary about the proper course of action.
In the decades ahead, economic historians will have ample opportunity to reflect on the Federal Reserve’s recent actions. Yet even with the benefit of hindsight, it can still take many years of analysis and discussion for historians to arrive at a consensus on how to interpret such big events—and they may never reach a consensus at all. With all of this in mind, the Federal Reserve Bank of Cleveland recently hosted the conference, Current Policy under the Lens of Economic History. We gathered some of the world’s leading monetary, financial, and central-bank historians to apply their perspective and insights to current policy debates.
In this issue of Forefront, we highlight several presentations from the conference. We begin with the founding of the Federal Reserve in 1913 and its role as lender of last resort. Federal Reserve economists David Wheelock and Mark Carlson remind us how the central bank’s response to the recent crisis drew important lessons from past episodes. Next, Vanderbilt University economist Peter Rousseau draws on the United States’ circuitous road to achieving a monetary union for insight into the prospects for today’s European Union.
Also in this issue is our interview with the conference’s keynote speaker, Barry Eichengreen from the University of California, Berkeley, known for his research on the Great Depression. Eichengreen reminds us to be careful about applying lessons from the past to present situations, because conditions may have changed to the point where history is not a useful guide, or because focusing only on the “lessons” may detract from more pressing developments.
Finally, I would be remiss if I didn’t mention the remarks of Carnegie Mellon University’s Allan Meltzer, widely renowned as the world’s leading Federal Reserve scholar. I attended Dr. Meltzer’s session and afterward told him that, although some of my opinions differed from his, I heard and appreciated the principles behind his remarks. Moreover, I believe that policy set in an echo chamber will most certainly not lead to the best outcomes. A robust and open discussion is an essential part of the policy-setting process.
Central banks worldwide, including the Federal Reserve, are taking innovative monetary policy actions that may influence the theory and practice of monetary policy in years to come. I believe that our accommodative monetary policy stance is keeping the US economy on the path of economic recovery, and is contributing to both US and worldwide economic growth. However, we are in uncharted waters. I am hopeful that history will above all bear out that we continually evaluated the risks associated with our policy actions, and that we always worked to promote a healthy economy for the nation.