Originally published September 19, 2011 at 6:14 PM | Page modified September 20, 2011 at 6:39 AM

Bernanke: Tolerating dissent as Fed chair but pushing past it

For someone known as a consensus builder, Federal Reserve Chairman Ben Bernanke sure generates, and shrugs off, a lot of dissent.

The Associated Press

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WASHINGTON — For someone known as a consensus builder, Federal Reserve Chairman Ben Bernanke sure generates, and shrugs off, a lot of dissent.

Bernanke last month pushed ahead with a plan to keep short-term interest rates near zero through mid-2013 despite three dissenting votes on the Fed's policymaking committee. For decades, the Fed's culture, and sometimes its strong-willed chiefs, have normally capped dissents at two.

Former Fed Vice Chairman Alan Blinder suggests that Bernanke's willingness to accept three dissents last month has "broken the ice": Bernanke won't let resistance from several members stop him from pushing through bold moves that he and a Fed majority consider necessary.

It's one reason many economists expect the central bank to announce something new after its two-day policy meeting this week to try to jolt the economy.

Eventually, some economists expect the Fed to try for the third time to stimulate growth through a program to buy Treasurys to lower long-term interest rates, a step known as "quantitative easing."

Whatever he proposes, Bernanke would surely prefer unanimous support, to avoid sending mixed messages to financial markets. But the chairman, an even-tempered academic, doesn't shrink from debate.

"My attitude has always been if two people always agree, one of them is redundant," Bernanke said this month in Minneapolis. "I have always tried to encourage debate and discussion."

He hasn't been disappointed. Bernanke hears plenty from dissenting committee members who worry that his efforts to energize growth and job creation with super-low interest rates are hurting savers and could ignite inflation.

Fed officials say the central bank remains collegial despite the dissension. They contrast Bernanke's Fed with the leadership of former chairmen like Arthur Burns and Paul Volcker, who were known for imposing their will on colleagues.

"Sometimes we have different opinions, but it's all very congenial and very professional," one of the dissenters, Charles Plosser, president of the Federal Reserve Bank of Philadelphia, told The Wall Street Journal this month. "It's not a vote of no-confidence in Bernanke. ... This is about how difficult decision-making is right now."

Outsiders have been less polite. Bernanke's policies have come under fire from members of Congress and from Republican presidential candidates Texas Gov. Rick Perry and U.S. Rep. Ron Paul.

Since becoming chairman in 2006, Bernanke has opened the often-secretive institution to deeper public scrutiny, in part by giving regular news conferences after some meetings of the policymaking committee.

Bernanke, who studied the Great Depression as an academic, has already taken extraordinary steps to boost the economy and stabilize the financial system.

During the 2007-2009 financial panic, the Fed made emergency loans to banks. Since December 2008, the Fed has kept short-term interest rates near zero.

And it's conducted two rounds of quantitative easing to try to lower long-term rates. Lower rates are intended to coax consumers and businesses into borrowing and spending more. They are also supposed to spur investors to shift money out of Treasurys and into stocks. Higher stock prices can make investors feel wealthy enough to spend more.

The Fed is a quasi-independent agency with two sometimes-conflicting missions: to keep inflation under control and to ensure maximum employment.

Until August, no Fed decision since 1992 had caused as many as three dissents on the policy committee. Economists say the level of disagreement isn't surprising: It's far from clear what more, if anything, the Fed should be doing to help lift the economy out of a low-growth, high-unemployment rut.

Yet the Fed remains under intense scrutiny because it seems to be the only U.S. financial institution capable of doing anything that might help the economy.

Republicans in Congress are resisting the Obama administration's effort to boost growth and create jobs with a new round of tax cuts and government spending.

Some economists say that the Fed has already used up all its ammunition with its zero-interest rate policy and its bond purchases.

Despite the Fed's efforts, unemployment is stuck at 9.1 percent. And the economy grew at an annual rate of just 0.7 percent in the first half of the year.

Yet the Fed is expected this week to signal further action. Most economists expect it to reshuffle its $1.7 trillion portfolio of bonds and mortgage securities, replacing short-term investments with long-term bonds.

That would be designed to further reduce long-term interest rates, leading to lower rates on mortgages and car loans and perhaps persuading wary consumers to spend more.

Or it could reduce or eliminate the 0.25 percent interest it pays on reserves that commercial banks keep with the Fed. Doing so could encourage some banks to lend more to businesses and consumers.

"The chairman will get done whatever he wants to do," said Rutgers University economist Michael Bordo. "The disagreements are just putting more pressure on him to come up with a good case."

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