Bernanke To Run Fed Free of Politics
In an article the other day Ben Bernanke, the nominee to take Allan Greenspan’s place as head of the Federal Reserve, has vowed to run the Fed free of politics.
“I assure this committee that, if I am confirmed, I will be strictly independent of all political influences and will be guided solely by the Federal Reserve’s mandate from Congress and by the public interest,” Bernanke told lawmakers.
He pledged to maintain “continuity” with Greenspan’s policies, saying it is a “top priority.” Bernanke also said he would move slowly and seek to build a consensus on the notion of inflation targeting – that is numerically spelling out acceptable bounds for inflation. That’s one area where Bernanke and Greenspan differ. Bernanke supports a numerical inflation target, Greenspan doesn’t.
What prompted this line of questioning?
“It is my expectation that the Fed chairman, even when he is a former White House adviser, refrains from being a cheerleader for the policies of either party,” said Sen. Tim Johnson, D-S.D.
I think this is a pretty silly question myself. I don’t think that an economist like Ben Bernanke is going to become merely a cheerleader for whatever policies come out of the Bush Administration.
Further, while I didn’t expect Bernanke to say anything other than what he did, I wonder how long he’ll be able to stick to such a position. With high energy prices, people expecting the housing bubble to burst any second now, massive trade and budget deficits and toss in the fact that Bernanke favors inflation targetting it is indeed going to be some interesting times at the Fed.
If Bernanke is serious about inflation targeting, the problems you mention argue for more, maybe faster, interest rate increases. If energy prices remain high, a mild winter could change this, they might work their way into other prices – an argument for further tightening. The only tool for dealing with trade deficits, other than protectionism, is to strengthen the dollar – another argument for further tightening. Senator Levin raised an interesting point, however, the Fed’s mandate is to curb inflation AND minimize unemployment. If Bernanke sticks to inflation targeting and plunges the country into a recession will someone charge him with violating the law?