Yesterday's Wall Street Journal (subscription required - or go to Mahalanaobis) compares the three main candidates to replace Alan Greenspan as Fed chairman when he retires early next year: Martin Feldstein, Glenn Hubbard, and Ben Bernanke. On Bernanke it comments:
Mr. Bernanke conducted research on monetary policy at Princeton University before joining the Fed in 2002. Since then, his plain-speaking style, numerous speeches and copious research have made him second in prominence at the Fed only to Mr. Greenspan. He recently said the hardest part of moving to the Fed was having to wear a suit: "My proposal that Fed governors should signal their commitment to public service by wearing Hawaiian shirts and Bermuda shorts has so far gone unheeded."
He may need to pay more political dues before getting a shot at the chairmanship. Though a libertarian Republican, he displays few partisan leanings. In 2000, as chairman of Princeton's economics department, he hired star economist Paul Krugman, now a vociferous Bush critic, from Massachusetts Institute of Technology. Mr. Bush will get a better feel for Mr. Bernanke's views during his stint at the Council of Economic Advisers, though people close to the process say the post isn't an audition for the Fed job.
I too had doubted that his recent appointment as chairman of the Council of Economic Advisers (CEA) was an 'audition'. Indeed, when I posted on Ben Bernanke's appointment to the CEA a month ago, I pondered whether the White House might instead be sidelining him:
Greenspan's post finishes in January 2006, only nine month's time. Would it make sense to move Bernanke back to the Federal Reserve after such a short period - and then have to fill the CEA post again? Probably not. I suspect it could be clearing the field for White House favourite Martin Feldstein.
Reader, I was wrong. Bernanke has the inside running to be next Fed chairman, and I expect him to replace Greenspan next year. Nor am I alone in this view. According to a 10 April Reuters report:
A recent Lehman Brothers poll put him at the front of the pack, even before he was named to the top job at the Council of Economic Advisers.
There are two main reasons for my change of mind. The first is that Bernanke has been determinedly 'on message' since his appointment. No more dark mutterings about disinflation, for example.
More importantly, according to my sources he has strong support within the Federal Reserve system and is viewed as the favourite (for once the Fed and markets are in agreement). Though all will deny it, the CEA post is likely to be an audition - enabling the White House to guage Bernanke's potential reliability and suitability for the Fed chairman post.
If Bernanke is appointed it will be the first time that someone has moved across from chairman of the CEA to chairman of the Federal Reserve. But I guess there's a first time for everything.
Bernanke is a top economist who would bring intellectual mettle to the job. I expect he would also display few partisan leanings; something which could not be said of the current chairman.
Of course, even though he is now the favoured candidate, it's not yet a done deal. For one thing, he could mess up. (Though I expect him to be upbeat and judicious in his remarks about the economy, avoiding off-the-wall musings or economically sound - but politically naive - observations). It's also possible Greenspan might meddle, or the White House decide it doesn't want inflation targeting (which Bernanke keenly supports), or may opt for another neocon. But somewhow, I think he'll make it.
UPDATE: Adam Kritzer at Forex Blog cites a 26 May Business Week column by Michael Wallace, Who Will Fill Greenspan's Shoes? Wallace argues that Feldstein is still in front. I disagree.
UPDATE 2: President Bush announced on Monday 24 October 2005 that Ben Bernanke would be the next Fed Chairman:
Today I'm honored to announce that I'm nominating Ben Bernanke to be the next Chairman of the Federal Reserve. Over the course of a career marked by great accomplishment, Ben has done path-breaking work in the field of monetary policy, taught advanced economics at some of our top universities, and served with distinction on the Fed's Board of Governors. He's earned a reputation for intellectual rigor and integrity. He commands deep respect in the global financial community. And he'll be an outstanding Chairman of the Federal Reserve.
...Ben Bernanke is the right man to build on the record Alan Greenspan has established. Ben graduated from Harvard with top honors, earned a doctorate in economics from Massachusetts Institute of Technology. He's built a record of excellence as both an academic and policymaker. He is the author of several scholarly books and is one of the most cited economists in the world. As Fed governor, Ben advocated greater transparency in communication with the public and markets. His speeches were widely admired for their keen insight and clear, simple language.
...Ben is also a kind and decent man who is held in high regard by all those who have worked with him. ...Ben, thanks for serving.
For more commentary and analysis see my three October posts Ben Bernanke to replace Greenspan as Fed Governor, Mark Thoma on Ben Bernanke and Bernanke round-up.
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