The Power of Narrative
Budget Reconciliation Stalls...

Perceptions of Ben Bernanke

Edmund Andrews writes:

Inflation Issue to Dominate Questioning of Fed Choice - New York Times : Ben S. Bernanke, President Bush's nominee to lead the Federal Reserve, will have to fend off two contradictory perceptions at his Senate confirmation hearing on Tuesday. Some Democratic lawmakers worry that Mr. Bernanke, who has contended for years that the Fed should set policy according to an explicit inflation target, will be too focused on price stability and not attentive to employment. Some bond investors, by contrast, fret that Mr. Bernanke will be soft on inflation. As a Fed governor in 2003, he raised alarms about the "jobless recovery" and the dangers of deflation. As a top adviser to Mr. Bush since June, he has been more confident than many Fed officials that inflation would remain low.

Both images are likely to prove simplistic....

Mr. Bernanke, a former professor at Princeton University and a Fed governor from 2002 until earlier this year, is likely to win Senate confirmation without a major fight. "It's noncontroversial," said Senator Jack Reed, Democrat of Rhode Island. "It's hard to argue about his qualifications."...

[S]ome Democrats, worry that inflation-targeting would conflict with the Fed's dual mandate of pursuing both price stability and full employment. In practice, Fed policy under Mr. Bernanke might not be all that different. Many analysts contend that the Fed already has an unstated inflation target, about 2 percent a year.... Mr. Bernanke, for his part, has written that the Fed can deviate from its inflation target - perhaps for several years, if necessary - to cope with an unexpected shock to the economy.

On inflation, many analysts predict that Mr. Bernanke would, at least at the beginning, err on the side of toughness.... But Mr. Bernanke was among the more dovish members of the Federal Open Market Committee, which sets interest rates, when policy makers were worried the United States might be headed toward a downward spiral in consumer prices. In August, as chairman of the Council of Economic Advisers, Mr. Bernanke sounded more confident than Fed policy makers about inflation....

As an academic economist and as a Fed governor, Mr. Bernanke prided himself on speaking clearly and sometimes even bluntly. But on Tuesday, Mr. Bernanke will face lawmakers who want "flexibility" and bond markets that want inflation-fighting credibility.

To satisfy both constituencies, he may have to sacrifice on his plain-speaking.

Ummm.... Some people (who won't let themselves be named) worry that Bernanke is too much an inflation hawk, other people (who won't let themselves be named) worry that Bernanke is too much of an inflation dove, and the only source that will allow himself to be named says that Bernanke's not a controversial nomination. Doesn't Andrews have the wrong lead? And doesn't Andrews have the wrong conclusion? There's no need for Ben Bernanke to "sacrifice on his plain speaking." All he has to do is duck and let those who worry he's too much of an inflation hawk argue with those who think he's too much of an inflation dove.

Comments