After a series of dubious political appointments it seems common sense has finally prevailed at the White House when it really matters: appointing Alan Greenspan's replacement as Fed Chairman.
Press stories today from Bloomberg, Reuters, MarketWatch , New York Times , CNBC and others are reporting that Ben Bernanke, current chairman of Bush's Council of Economic Advisors, former Fed governor, and head of the economics department at Princeton University, is likely to be named as Greenspan's replacement.
Bernanke has been the favoured candidate amongst most press commentators, econobloggers and other Fed watchers, on the intrade.com betting markets, and a Financial Times online poll. For good reason. He performed well as a Fed Governor, is a first class economist, and is neither a Greenspan nor a Bush yes-man.
In my 28 April post, Ben Bernanke: The next Fed chairman, I wrote:
Bernanke has the inside running to be next Fed chairman, and I expect him to replace Greenspan next year. ...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.
The US will now have a Fed Chairman who favours inflation targeting, rather than seat-of-the-pants 'judgement' by the 'maestro'. As Bernanke said in a key Fed speech in March 2003, A Perspective on Inflation Targeting:
Personally, though, I believe that U.S. monetary policy would be better in the long run if the Fed chose to make its policy framework somewhat more explicit. First, the Fed is currently in a good and historically rare situation, having built a consensus both inside and outside the Fed for good policies. We would be smart to try to lock in this consensus a bit more by making our current procedures more explicit and less mysterious to the public. Second, making the Fed's inflation goals and its medium-term projections for the economy more explicit would reduce uncertainty and assist planning in financial markets and in the economy more generally. Finally, any additional anchoring of inflation expectations that we can achieve now will only be helpful in the future.
That should satisfy one of Martin Wolf's concerns, namely that "giving so much discretion to an institution dominated by one person is risky". Quite so.
UPDATE: Blog commentary so far from Barry Ritholtz at The Big Picture, Kash at Angry Bear, Tyler Cowen at Marginal Revolution, Max Sawicky, Brad Setser, Daniel Drezner, Bob at Stationary Bandit and Jacob at Everyone's Illusion. Barry comments:
The Fed chair replacement comes amid the tumult of the Harriet Miers Supreme Court nomination, the previous black eye of the FEMA chief Brown -- and not even discussing the problematic appointments of the poor planning in Iraq post-War period -- this is one appointment that the pro-market White House wouldn't dream of risking on anything less than a stellar candidate, and that have one in Bernanke. We should expect an easy confirmation.
And Kash writes:
This is actually a pretty good choice, I think. (Full disclosure: he was one of my professors in grad school, so I accept the possibility that I might be biased on this.) Bernanke is a superb macroeconomist, a nice guy, and, despite his current position as chair of the CEA (a position that has historically been filled by highly respected academics with only minor partisan leanings), he is not a sharply partisan or ideological person. Credit one to Bush for making a sensible pick in this case.
While Max has this to say on the appointment:
He is well-qualified, and he has managed to sail through his brief tenure in the Bush Administration with minimal resort to demagogy, in contrast to predecessor Glenn Hubbard. Best of all is the passing over of the obnoxious Martin Feldstein, who will have to content himself with endless attacks on Social Security from his bunghole at Harvard University.