The Great Recession has spelled dramatic changes in the way central banks operate, Federal Reserve chairman Ben Bernanke said on Tuesday, insisting a new focus on financial stability is needed.
Presenting one of the clearest expositions yet of the thinking that has underpinned his running of the Fed, Bernanke said two decades of policy consensus had been shattered by the recent downturn.
"The crisis seems certain to have profound and long-lasting effects on our economy our society, and our politics," Bernanke told an audience in Boston.
"More subtle, but of possibly great importance in the long run, will be the effects of the crisis on intellectual frameworks, including the ways in which economists analyze macroeconomic and financial phenomena."
Those changes, he said, according to the text of the speech, would be felt in how much guidance central banks provide about their expectations and how much banks move toward formal and informal targets.
But he held up a newfound focus on financial stability as the greatest ground shift for central banks -- implying that in the past this had been neglected.
"Although... (the previous policy) framework had helped produce a long period of macroeconomic stability, it ultimately, by itself, was not enough to ensure financial stability."
"One of the most important legacies of the crisis will be the restoration of financial stability policy to co-equal status with monetary policy," he said.
Bernanke also said the Fed's top policy-making panel, the Federal Open Market Committee, would continue its drive to be more forthcoming and explicit about policy plans and expectations for the economy.
"The FOMC continues to explore ways to further increase transparency about its forecasts and policy plans," he said.
Bernanke added that he did not believe that the extraordinary tools used by the Fed and other central banks to provide economic stimulus would be used when interest rates are eventually raised off their current lows.
"The use of balance sheet policies for macroeconomic stabilization purposes has reflected the constraints on more-conventional policies as short-term nominal interest rates reach very low levels."
"In more normal times, when short-term policy rates are not constrained, I expect that balance sheet policies will be rarely used."