Fed's Bernanke says inflation spike not as bad as the 1970s

The price spike is not much near what Americans experienced in the 1970s, as the U.S. is facing the worst inflation spike in a generation, but former Chairman Ben Bernanke said on Monday the price spike was not near what Americans experienced in the 1970s.

Bernanke said there were similarities in a very limited way, like the effects of energy shocks, during a discussion at the Brookings Institution. This episode and the 1970 s episode are quite different. Inflation is close to a four-decade high, with the price of everyday goods such as cars, rent, gasoline and health care going up over the past year. Inflation today is still a long haul away from the 1970s despite the fact that the rising prices are unwelcome for Americans.

Consumer prices went up by 8.3% in April on an annual basis, close to a 40 year high, but down slightly from the reading in March, according to the Labor Department. Inflation in the 1970s remained elevated for almost a decade, peaking at a high of 14.8% in 1980, as spiking oil prices, rising unemployment and easy monetary policy pushed the consumer price index higher.

The Fed policymakers were forced to raise interest rates to nearly 20% that year because of high inflation.

According to Bernanke, who led the Fed from 2006 to 2013 and led the economy through the worst of the 2008 financial crisis, the 1970s episode posed a much larger shock to the economy. He noted during the period of stagflation high unemployment and high inflation that the economy had two minor recessions and two major recessions.

There's nothing to indicate that we're anywhere near that situation, he said.

On top of that, rising consumer prices have forced the Fed to tighten policy in decades. Policymakers raised rates by a half-point earlier this month, and have signaled that similar hikes are on the table at coming meetings.

Bernanke said that today's Fed policymakers have more credibility and commitment to reducing inflation than their 1970 counterparts.

He believes that the Fed will bring inflation down over the next couple of years.

Bernanke has recently criticized the central bank, saying that the Fed Chairman and his colleagues waited too long to act on inflation and warned that the economy is going to suffer from a period of stagflation.

The forward guidance on the margin slowed the response of the Fed to the inflation problem, Bernanke said last week in an interview with CNBC. I think it was a mistake in retrospect and I think they agree it was a mistake.