Yellen: Greenspan's "irrational exuberance" speech was too mild
Alan Greenspan's "irrational exuberance" line about the stock market may very well be the most famous comment delivered by a Federal Reserve chair. But Janet Yellen says when she previewed the speech, she figured nobody would still be awake by the time Greenspan delivered his observation.
Yellen recalls telling Greenspan that it was "too mild" before he spoke at the American Enterprise Institute in 1996. She said she believed listeners would already be asleep by the time he reached the "irrational exuberance" line that so inflamed Wall Street.
"It was an error in judgement on my part," said Yellen, noting the "stock market immediately swooned."
Yellen, who recently joined the Brookings Institution after a four-year stint as Fed chair, said she and Greenspan disagreed on some issues, including her view the Fed should adopt a numerical target for inflation. But she said she found him to be "a very original thinker who was open to debate."
Greenspan's stance against adopting an inflation target held until 2012, when his replacement, Ben Bernanke, brought the U.S. central bank in line with many of the world's other central banks.
"You especially should be proud of putting in place what I think has been a successful" policy, Yellen told Bernanke on Tuesday in a conversation billed as a "Fed Duet" at Brookings, where Bernanke also serves as a fellow.
"I hope this is more pleasant than sitting before the House Financial Services Committee," Bernanke said at the start of the conversation. Yellen's replacement at the Fed, Jerome Powell, made an appearance earlier Tuesday on Capitol Hill.
Yellen said she went to college thinking she'd major in math, but changed her mind after her first economics course, describing it as "love at first sight."
Economics appealed to her because the field "is very much a discipline concerned with human welfare," she added.
Asked about a recent assertion questioning the effectiveness of quantitative easing -- a policy of securities purchases pursued by the Fed that was designed to lower interest rates and increase the money supply -- Yellen defended the unprecedented intervention. "I thought it was an all-hands-on-deck type situation," she noted.
The Fed is currently engaged in unwinding those asset purchases, which came as part of the Fed's response to the 2008 financial meltdown and subsequent recession.
That said, "monetary policy should not be the only game in town," said Yellen, reiterating a theme both she and Bernanke struck during their terms at the helm of the central bank. Both called on Congress to enact fiscal policy with the goal of strengthening the economy. "It's one reason our current situation concerns me as much as it does," said Yellen.
Appointed by former President Barack Obama as the first woman to lead the central bank, Yellen told CBS's Sunday Morning earlier this month that she was disappointed not be nominated for a second term by President Donald Trump. Still, she praised her replacement as a thoughtful policy maker devoted to public service.