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Ex-US Fed chairman says low rates are here to stay

DINNER TALK:Ben Bernanke does not expect the US Fed’s main interest rate to rise back to 4 percent in his lifetime, a guest cited as the impression they were given

Reuters, NEW YORK and BOSTON

Ben Bernanke sits at the National Economists Club annual dinner at the US Chamber of Commerce in Washington on Nov. 19 last year when he was US Federal Reserve chairman.

Photo: Reuters

In a series of quarter-million-US-dollar dinners with wealthy private investors, Ben Bernanke has been clearer than he ever was as chairman of the US Federal Reserve on his expectations that easy-money policies and below-normal interest rates are here for a long time to come, according to some of those in attendance.

Bernanke, who retired from the US central bank in January, has predicted that the Fed will only very slowly move to raise rates, and probably do so later than many forecast because the labor market still has a lot more room to recover from the financial crisis and recession.

The accounts of the discussions came from attendees, as well as those who heard second-hand what was said at the dinners, where hedge-fund managers and others willing to foot the US$250,000 bill for each event asked the former Fed chairman questions in a free-flowing round-table fashion over recent weeks.

Bernanke has no constraints on expressing his views in public or private, providing he does not talk about confidential Fed matters.

The demand for Bernanke’s time shows that many of Wall Street’s highest-profile brokers and investors see him as holding rare insight on how the Fed will act, and are prepared to pay big bucks to get private access to those views.

At least one guest left a New York restaurant with the impression that Bernanke, 60, does not expect the US federal funds rate, the Fed’s main benchmark interest rate, to rise back to its long-term average of about 4 percent in Bernanke’s lifetime, one source who had spoken to the guest said.

Under his direction, the Fed took the fed funds rate, its key policy lever, to near zero in late 2008 as the financial crisis raged.

The central bank has held it there ever since in a bid to stimulate a stronger rebound in the world’s largest economy.

Another dinner guest was moved when Bernanke said that the Fed aims to hit its 2 percent inflation target at all times, and that it is not necessarily a ceiling.

“Shocking when he said this,” the guest scribbled in his notes. “Is that really true?” he scribbled at another point, according to the notes reviewed by Reuters.

The sources requested anonymity because the dinners were private and they were not authorized to discuss the material publicly.

The Washington Speakers Bureau, which organizes the events and advertises the former chairman’s availabilty on its Web site, did not return calls.

Since leaving the Fed at the end of January after serving eight years as chairman, Bernanke has taken a position as a distinguished fellow at the Brookings Institution, a think tank in Washington.

He kept a low profile for the first month after his departure, delivering his first public remarks to a banking conference in Abu Dhabi on March 4 and earning a US$250,000 speaker’s fee.

His annual paycheck from the Fed was US$199,700 last year — an amount that he would have already exceeded many times over from the fees he has earned in the past couple of months.

By contrast, his predecessor, Alan Greenspan, waited only a week after his departure before addressing a private dinner hosted by Lehman Brothers, the investment bank whose collapse in 2008 sent the financial crisis into high gear.

That also brought in a reported US$250,000, while a private telechat with investors in Japan that same day in 2006 was worth about half of that, each drawing criticism for giving high-paying investors a leg up on others who did not have access to Greenspan.

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