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Bernanke likens ’08 financial crisis to car crash

Bernanke

– In his final public appearance as chairman of the Federal Reserve, Ben Bernanke took a moment to reflect on the 2008 financial crisis and compared it to surviving a bad car crash.

During an interview Thursday at the Brookings Institution, Bernanke recalled some “very intense periods” during the crisis, similar to trying to keep a car from going over a bridge after a collision.

The government had just taken over mortgage giants Fannie Mae and Freddie Mac. Lehman Brothers had collapsed. He recalled some sleepless nights working with others to try to contain the damage.

“If you’re in a car wreck or something, you’re mostly involved in trying to avoid going off the bridge. And then, later on, you say, ‘Oh, my God!’ ” he said.

Bernanke will leave the Fed on Jan. 31 after eight years as chairman. His successor, Janet Yellen, will take over on Feb. 1.

Bernanke defended the Fed’s efforts during the ’08 crisis, including massive purchases of Treasury bonds to push long-term interest rates lower and giving forward guidance to investors about how long the Fed plans to keep short-term interest rates near zero.

Critics have warned that those efforts pose great risks for higher inflation or financial market turmoil.

But Bernanke says there has not been a problem with inflation, which is running well below the Fed’s 2 percent target.

Should inflation start to be a problem as the economy starts growing at a faster rate, the Fed “has all the tools we need to manage interest rates” to keep inflation from getting out of hand, he said.

“Inflation is just not really a significant risk” from the bond purchases, Bernanke said.

Bernanke said the central bank was aware of potential threats to financial market stability from its massive bond holdings and is monitoring markets closely to spot any signs of trouble. He said this threat was the one “we have spent the most time thinking about and trying to make sure that we can address” if the need arises.

But he said any concerns about financial stability did not outweigh the need to keep providing support to the economy.

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