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Ben Bernanke, Interest Rates, and the Credit Crisis

Federal Reserve chairman Ben Bernanke is a Harvard graduate, former Princeton University professor, and author of two books. Considered one of the world’s best economists, Bernanke is most known recently for his dramatic cuts in key interest rates designed to stimulate a slowing US economy.

Bernanke was nominated by President George W. Bush to succeed Alan Greenspan in late 2005. Bernanke was sworn in as the US housing market was beginning to undergo a crisis. Many homeowners had taken on mortgages in which interest rates were beginning to rise beyond many borrowers’ ability to pay. These loans are referred to as “Adjustable Rate Mortgages”.

The slowdown in the housing market caused many banks to restrict credit to consumers, making it hard for borrowers to obtain low interest rates for car and home loans. With the economy slowing at an alarming rate, Bernanke announced a plan to keep economic markets stable. The Federal Reserve cut the Federal fund interest rate, which allows banks to pay less interest to borrow from each other. Bernanke hopes this rate cut will allow consumers more access to credit in the future, and have a stimulating effect on the economy.