Robert J. Samuelson: Federal Reserve's 100th birthday filled with frustration

Published: Tuesday, Dec. 24 2013 12:00 a.m. MST

Unfortunately, this success abetted the 2008-09 financial crisis. Prolonged prosperity seemed to reduce risks; investors could rationalize taking more risks, because the downside seemed limited. Sloppy, dangerous and unethical practices spread at banks and other financial institutions. Meanwhile, low inflation reassured the Fed. It distracted attention from the financial system, whose overall stability didn't in any case worry most officials. An American financial collapse hadn't happened since World War II and was an unthinkable abstraction, outside their personal experience. The result was that "we were slow to recognize the crisis," as retiring Fed Chairman Ben Bernanke said recently.

What's clear is that the Fed isn't as powerful as it seemed under Greenspan. True, once Bernanke acknowledged the crisis, he acted forcefully to pump funds into the financial system. For this, he has been widely and deservedly praised. A second Great Depression was possibly avoided; the 1930s failure was not repeated. But the Fed has discovered that it lacks the power to resuscitate the economy single-handedly. Five years of short-term interest rates near zero and roughly $3 trillion of bond-buying have, at most, modestly improved a weak recovery. On its centennial, one word best describes the Fed: frustration.

Robert J. Samuelson is a Washington Post columnist.

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