Notable Federal Reserve Chairs

Why This Matters

The Federal Reserve Chair is arguably the most powerful economic position in the world, and understanding how different chairs have shaped monetary policy is essential for grasping how the American economy has grown, contracted, and transformed over the past century. You're being tested on more than just names and dates—exam questions focus on monetary policy tools, inflation management, crisis response, and the tension between economic growth and price stability. Each chair represents a different approach to these fundamental challenges.

Don't just memorize who served when. Know what economic problem each chair faced, what tools they used to address it, and whether their approach represented tight money (fighting inflation) or easy money (stimulating growth). The best FRQ responses connect specific chairs to broader concepts like the Phillips Curve trade-off, quantitative easing, and central bank independence. Master those connections, and you'll handle any monetary policy question with confidence.

---

Fighting Inflation: The Tight Money Approach

Some Fed chairs are remembered primarily for their willingness to raise interest rates aggressively, accepting short-term economic pain to achieve long-term price stability. This approach reflects the monetarist view that controlling the money supply is the Fed's primary responsibility.

Paul Volcker

• Defeated stagflation through historically high interest rates—the federal funds rate reached nearly 20% in 1981, deliberately triggering a recession to break inflationary expectations
• Restored Fed credibility after the inflationary 1970s by demonstrating the central bank would prioritize price stability even at significant political cost
• Laid the foundation for the Great Moderation—the period of low inflation and stable growth that characterized the 1980s and 1990s began with his policies

William McChesney Martin Jr.

• Longest-serving Fed chair (1951-1970) who established the principle of central bank independence from political pressure during the postwar era
• "Leaning against the wind" philosophy—his metaphor for countercyclical policy, raising rates during expansions and lowering them during contractions
• Managed postwar expansion while navigating inflationary pressures from Vietnam War spending, though inflation accelerated toward the end of his tenure

---

Crisis Management: Emergency Intervention

Other chairs are defined by their response to financial emergencies, deploying unconventional tools when traditional interest rate policy proves insufficient. These situations test the Fed's role as lender of last resort and its ability to prevent systemic collapse.

Ben Bernanke

• Pioneered quantitative easing (QE) during the 2008 financial crisis—the Fed purchased trillions in mortgage-backed securities and Treasury bonds when interest rates hit zero
• Academic expertise in the Great Depression directly informed his aggressive response; he understood that the 1930s Fed had failed by tightening too early
• Enhanced Fed transparency by introducing regular press conferences and clearer forward guidance about future policy intentions

Alan Greenspan

• Oversaw the longest peacetime expansion in U.S. history (1991-2001), earning the nickname "the maestro" for seemingly precise interest rate management
• Responded to multiple crises—the 1987 stock market crash, 1997 Asian financial crisis, and dot-com bust—by providing liquidity and cutting rates
• Controversial legacy due to criticism that low interest rates and deregulation contributed to the housing bubble and 2008 financial crisis

---

Inclusive Growth: Expanding the Fed's Focus

Recent chairs have broadened the Fed's attention beyond inflation to include employment, inequality, and the distributional effects of monetary policy. This reflects the Fed's dual mandate and evolving understanding of what constitutes a healthy economy.

Janet Yellen

• First woman to serve as Fed chair (2014-2018), continuing the post-crisis recovery while beginning to normalize interest rates after years near zero
• Emphasized labor market health beyond the unemployment rate, focusing on measures like labor force participation and wage growth for lower-income workers
• Advocated for addressing inequality within the Fed's mandate, arguing that monetary policy decisions have different impacts across income levels

---

Quick Reference Table

---

Self-Check Questions

1. Which two Fed chairs are most associated with establishing and defending central bank independence, and what specific challenges did each face?

2. Compare and contrast Volcker's approach to inflation with Greenspan's approach to financial crises. What does each reveal about the Fed's tools and priorities?

3. If an FRQ asks you to explain how the Fed responded when interest rates reached zero, which chair and which policy tool should anchor your response?

4. How did Janet Yellen's emphasis on labor markets represent a shift from earlier Fed priorities? What economic concept justifies this broader focus?

5. Why might economists criticize Greenspan's legacy while praising his crisis management during the 1990s? What tension does this reveal about monetary policy?