Federal Reserve and Bernanke Committed to do More

Fed Chairman Ben Bernanke continues to remind America that the Fed is dedicated to fixing the economy. But the problems are global, require cooperation from central banks worldwide, and are unprecedented in the history of the world.

Federal Reserve Chairman Bernanke, whose term at the central bank will continue until 2010 unless he decides to resign from his post, has a job that nobody envies. He's generally regarded as a brilliant monetary strategist who's done exceedingly well under extraordinarily adverse conditions. For months he's been working overtime to keep the economy from plummeting into a deep recession, or running away with rampant inflation. Nothing has worked as he might have hoped, though, because the U.S. is mired in the worst economic catastrophe since the Great Depression.

Bernanke on the move

If Bernanke hadn't been in charge of the Fed during the past few years, things might have gotten a whole lot worse.  He's reassured everyone around him that he's ready to do whatever it takes to survive the current crisis. He points out that the interconnectivity and continuing volatility of worldwide markets means that international policy makers-the people who head central banks around the world-need to stay in close contact, monitor developments closely, and be ready to take steps together, as needed. In this spirit of cooperation, Bernanke has already succeeded in getting global central banks to implement the biggest coordinated interest-rate cut in history. The Fed also removed limits on certain currency exchange programs with four of its counterparts, and agreed to contribute $30 billion worth of support to each of the central banks in Brazil, Mexico, Singapore, and South Korea.

Tools of the Fed

Under Bernanke's tenure, the Fed has slashed domestic rates more aggressively than ever before.  Yet the central bank's actions have been unable to stem the tide of foreclosures and the decline of the stock market. Now, the Fed rate is at a mere 1 percent, and may get trimmed yet again before the end of the year.  Although this is traditionally the most powerful and useful tool in the central bank toolbox, Bernanke no longer has much leeway on the downside. As Warren Buffett recently said in an interview about the current economic crisis, cutting interest rates from this level is like "jumping off a pancake." Bernanke can cut them all the way down to zero if he and his colleagues at the central bank vote to do so, but the impact of such a move might do more to undermine confidence in the markets than it does to bolster lending activity. Under Fed Chairman Greenspan earlier this decade, that kind of rate-cutting policy led to the mortgage and real estate bubble. When the bubble burst, Americans inherited the current mess.