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Candid Criticism for Fed That Wasn’t on the Agenda

Lawrence H. Summers, left, with Ben S. Bernanke after a lively panel discussion Friday during a conference in Washington.Credit...Jonathan Ernst/Reuters

WASHINGTON — It started off as yet another staid International Monetary Fund conference on financial crises, filled with ample praise for one of its high-wattage speakers, Ben S. Bernanke, the Federal Reserve chairman, and carefully calibrated comments on optimal monetary policy.

Enter Lawrence H. Summers.

Now that he is no longer a candidate to head the Federal Reserve, Mr. Summers — who withdrew from consideration this fall in the face of stiff resistance in Congress, with the White House ultimately nominating Janet L. Yellen — was perhaps freer to speak in his trademark blunt style. And he didn’t disappoint, arguing that by many important metrics, policy has failed.

Mr. Summers underscored how weak the economy remains, despite the extensive stimulus and the Fed’s continuing campaign of asset purchases, with the labor market slack and inflation subdued.

“My lesson from this crisis is, my overarching lesson is that it’s not over until it is over, and that is surely not right now,” he said.

He noted that short-term interest rates had remained close to zero for years, with no end in sight: “We may well need in the years ahead to think about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity.”

“There’s no evidence of growth that is restoring equilibrium,” Mr. Summers added. “One has to be concerned about a policy agenda that is doing less with monetary policy than has been done before, doing less with fiscal policy than has been done before,” and is “taking steps whose basic purpose is to cause there to be less lending, borrowing and inflated asset prices than there was before.”

It was, in essence, a call for a revitalized, crisis-style campaign to improve the economy, especially to get young people to work. Elements might include major public investment, he said.

Mr. Bernanke raised some objections in an unusual back-and-forth that had the room riveted. He pointed to a theory that interest rates could not remain negative in perpetuity, as a counter to Mr. Summers’s comments. At the same time, he called the comments “fascinating.”

Later, Mr. Bernanke said that the unemployment rate, at 7.3 percent, might not be capturing the extent of the problems in the labor market, arguing that the “Federal Reserve in particular is taking strong actions to support job creation.” He also said that student loan debt was a “serious issue” though he did not expect it to have a destabilizing financial effect. But he generally shied away from commenting on current economic conditions or on the Fed’s efforts to stimulate the economy.

In his opening statements, Mr. Bernanke, who was a scholar of the Great Depression before he became a central banker, drew parallels between the 2008 panic and one that happened a century before, before the Fed even existed.

The other participants at the Fed conference were Stanley Fischer, an American economist who formerly led Israel’s central bank; Kenneth Rogoff, an economist at Harvard and a financial historian; and Olivier Blanchard, the I.M.F.’s chief economist.

In his comments, Mr. Fischer said that the crisis had shown how much central banks could do to stimulate growth even after bringing interest rates all the way down to zero. He praised Mr. Bernanke for creating a new playbook for crisis response, and warned about the difficulty of identifying problems early enough to prevent serious damage.

Mr. Rogoff discussed the outstanding questions of how to bail out financial institutions and how to write down the value of toxic assets. He also stressed the importance of differentiating between insolvent financial institutions and ones just suffering from short-term difficulties.

But Mr. Summers ended up being the most outspoken and vocal participant. Toward the end, he added that nobody involved in crisis response — Mr. Summers was a top economic adviser to President Obama during his early years in office — felt fully satisfied. But he saw a silver lining: There is little chance of another financial crisis anytime soon.

He said that most crises are preceded by “complacency and euphoria.” Thus, a new one might be far off.

A version of this article appears in print on  , Section B, Page 6 of the New York edition with the headline: Candid Criticism for Fed That Wasn’t on the Agenda. Order Reprints | Today’s Paper | Subscribe

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