Bernanke Leaves Less Room for Fed Change Under Romney

Photograph by Tomohiro Ohsumi/Bloomberg

Ben S. Bernanke, chairman of the Federal Reserve, attends the International Monetary and Financial Committee (IMFC) in Tokyo.

Federal Reserve Chairman Ben S. Bernanke works most weekends, writing and reading without the constant interruptions that come from leading one of the world’s most important central banks. He isn’t the kind of guy who gets his picture taken at Washington parties with a drink in hand or who talks openly about his future. He is a bit of a workaholic, and keeps his diversions to the Washington Nationals and books.

For all that, people who know the chairman as well as anybody, such as New York University economist Mark Gertler and former Fed Vice Chairman Donald Kohn, doubt that the Fed chair would accept a third term. That’s created worries in the financial markets that the next chairman under a Mitt Romney presidency could be somewhat tighter on monetary policy than this chairman.

That assertion ignores the large institutional changes Bernanke has put in place and the current construct of the Federal Open Market Committee. Bernanke has worked hard to transfer authority to the FOMC. It is a nuanced process. He is still the chairman. He still leads the calls, yet they are ultimately the committee’s calls.

“The advantage of that approach, and one that Bernanke had in mind from the very beginning of his tenure, is that it separates the FOMC as an institution from its chairman,” Robert Perli, a managing director of policy research at International Strategy & Investment Group, wrote this morning. Perli served in the Fed’s policy strategy unit under Bernanke. “Because the FOMC will be the same even after the chairman leaves, a large degree of policy continuity is ensured.”

Perli said that the FOMC’s current intent to keep the benchmark lending rate around zero until mid-2015 would be credible no matter who is chairman because the economy is still operating far below its capacity.

Minutes from the Fed’s September meeting showed that the 2015 date was supported by 13 of 19 Fed officials. What’s more, Perli notes, the Fed’s transparency efforts under Bernanke continue.

Officials are intent on showing the public an FOMC consensus forecast or simple policy rule that is likely to further underscore the rationale for keeping the benchmark lending rate near zero until 2015.

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