Two Bernankes … better than one?

Randall Forsyth of Barron’s writes about the apparent split personality of former Federal Reserve Chairman Ben Bernanke.

… [T]here seem to be two Ben Bernankes out there, and, presumably, both would profess to tell the truth.

One of them last week started a blog in his current position of distinguished fellow in residence, economic studies, at the Brookings Institution. Another used to be the chairman of the Federal Reserve Board. Yet, those two Ben Bernankes seem to be at odds with each other.

The think-tank scholar last week wrote that long-term interest rates were not set by central-bank policies but by fundamental factors, notably inflation and real interest rates, which are a function of economic growth.

In contrast, in November 2010, the then Fed chairman wrote a Washington Post op-ed article to explain why the central bank was buying hundreds of billions of dollars of government securities. The answer, according to his defense of the central bank’s policy moves, was to lower long-term interest rates.

At this point, Bud Collyer, the bow-tied emcee of To Tell the Truth, would exclaim, “Will the real Ben Bernanke, please, stand up!”

Is it the Bernanke who now insists that central banks have no influence over long-term interest rates? Or the other guy, who argued four-plus years ago that the Fed was undertaking unconventional policies in order to drive down long-term rates?

In his initial Brookings blog post last week, Bernanke wrote, “If you asked the person in the street, ‘Why are interest rates so low?’ he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense. The Fed does, of course, set the benchmark nominal short-term interest rate.

“But what matters most for the economy is the real, or inflation-adjusted, interest rate (the market, or nominal, interest rate minus the inflation rate),” he continued. “The real interest rate is most relevant for capital investment decisions, for example. The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited.”