Fed losing its economic clout for future recessions

Washington

BEN Bernanke is worried - and perhaps we should be. As chairman of the Federal Reserve from 2006 to 2014, it was he who, along with others, prevented the worst recession since World War II from becoming Great Depression II. Now he fears that should another sharp recession occur, the Fed won't be able to contain it.

Traditionally, the Fed has sought to influence the economy by changing short-term interest rates. If a recession looms, the Fed cuts the "Fed funds" rate to stimulate demand. If the danger is inflation, the Fed raises the rate to relieve wage and price pressures. Changes in the Fed funds rate are assumed to nudge rates on mortgages, corporate bonds and Treasury securities in the same direction.