Strategic Briefing – Fed Governors and Monetary Policy Under Pressure

The Most Important Economic Story Nobody Is Talking About
The Atlantic | May 3
By failing to appoint new members to the Federal Reserve, Obama has failed the economy…. Behind every great central banker stands a great central banking committee. Or at least a pliant one. It’s this latter reality that President Obama still has not quite recognized. And this malign neglect of most matters monetary has added a wholly unnecessary degree-of-difficulty to the economic recovery…. As Greg Ip of The Economist has pointed out, most of Bernanke’s colleagues now want to raise rates before he does. He increasingly looks isolated…. It’s worth remembering that even the hawks project inflation to remain below target and unemployment to remain above target for the next few years. If the Fed believes its own forecasts, it should be doing more…. There are two unfilled seats on the FOMC. President Obama’s picks for those positions have been among the victims of the endless Republican obstruction in the world’s greatest deliberative body. There’s a simple solution. Obama could just bypass the Senate with recess appointments. That’s what he did for the Consumer Financial Protection Bureau (CFPB) and National Labor Relations Board (NLRB). Why not do the same for the Federal Reserve (or the Federal Housing Finance Agency)?

Missing Federal Reserve Board Members, Hawks and Weak Leadership
Marcus Nunes (Historinhas) | May 5
I wholeheartedly agree that Obama´s failure to make good board appointments has made life harder for Bernanke. But there´s another reason for what many view as Fed ‘passivity’ and that is Bernanke´s weak leadership qualities. After all, during Greenspan´s years at the Fed´s helm, the FOMC had its usual assortment of “hawks”…. Maybe Greenspan, not being an academic, was pragmatic. He didn´t appear to have “obsessions”, saying phrases such as: “with the ‘appropriate monetary policy’ we will keep risks to inflation and growth balanced”. What the heck does ‘appropriate monetary policy’ mean? That was for the ‘Fed Watchers’ to figure out! But Bernanke is obsessed with inflation – in particular with its negative manifestation deflation. He´s not a natural leader, so he could not bring the hawks to see things his way – as he had long ago figured out for Japan – especially during critical junctures.

Occupy the Philly Fed!
Keystone Politics | May 2
[Charles Plosser] is the President of the Philly Fed, and he has used this position to stop the Federal Reserve from taking more action to get the economy back to full employment. The good news is that Plosser’s 5-year term is up at the end of 2012, so there’s *some* chance his replacement will care more about full employment. The bad news is this chance is very small, since the new President will be appointed by a Board whose members are mostly selected by the banks in the district.

Federal Reserve draws legislative fire from both sides of the aisle
The Hill | May 6
Along with Paul’s bill to eliminate the Fed, two other Republican measures to be discussed are being offered by Reps. Brady and Mike Pence (Ind.). Pence’s bill, which he also introduced in the last Congress, would cut the Fed’s mission in half. Since 1977, Congress has handed the Fed a dual mandate of maximizing employment while controlling inflation. Recent steps taken by the Fed in pursuit of the former goal, like near-zero interest rates and two rounds of “quantitative easing,” have earned recriminations from Republicans, who worry the moves could be encouraging inflation.

How the Next President will get to Re-Shape The FED
LearnBonds | April 2012
If Mitt Romney is elected President, his appointments to the Federal Reserve Board will likely be far more hawkish than Obama’s. Two of his leading economic advisers, Glenn Hubbard and Greg Mankiw are both seen as hawks. Mr. Mankiw wrote an academic paper in 2001 which laid out a formula for an ideal fed funds rate. According to RBS, his formula would indicate that the Fed Funds rate should rise to 0.8% by the end of 2014. This would be an increase of ⅔ percent from the current target of 0.0 to 0.25%.

This post originally appeared at The Capital Spectator and is posted with permission.