08 November 2012

Election 2012: The Fed

The one concern I did have about this election would be the practical effects it would have on the Fed. Bernanke is rumored to be stepping down in January. Mark Thoma speculates:
 If President Barack Obama is re-elected and chooses to replace Bernanke, I believe -- as do others -- that Fed Board of Governors Vice Chairman Janet Yellen is the most likely nominee. Her views are close to those of Bernanke, so she would provide the continuity that financial markets seek. She is also highly experienced, having served as president of the San Francisco Fed, and her academic credentials are very strong. She'll be able to handle the academic heavyweights on the bank's monetary policy committee. There are also political advantages for Obama if he appoints what would be the first female Fed chief.

If Romney is elected, it's a different story. Economists in the Romney camp, such as Stanford University's John Taylor, would be much more hawkish in trying to control inflation and much more devoted to following rule-based, rather than discretionary, policy.
 While I don’t agree with Thoma’s assertion that Romney would have been a different story, practically speaking, I am inclined to defer to his expertise about Obama’s pick. My concern, though, as stated before, is that by Bernanke stepping down, less attention is paid to federal reserve policy, making it easier for the Fed to keep harming the country by its policies. If the rumor that Janet Yellen will replace Bernanke and essentially follow in his footsteps is correct, more vigilance will be needed. Thus, the main downside to Obama’s reelection is that it ensures that Federal Reserve policy will continue unabated. Not that things would be all that different under Romney, of course.

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