Not Who Should Lead the Fed, But How
Steve Pearlstein has a nice column today arguing that the important question is not who should be appointed — or reappointed — chairman of the Federal Reserve, but how that job is to be structured in the first place.
Whenever the Fed comes under serious attack, as it has recently, its reflexive response is to accuse its critics of jeopardizing the Fed's independence. Yet if you think about it, the greatest threat to the Fed's independence comes not from outside the institution but from a chairman and members who are so anxious to get reappointed that they begin to tilt policy to win favor with the White House or with Wall Street or take on a reluctance to criticize policies that they think harmful to the economy.
There are two easy fixes for this problem. Congress could extend the chairman's term from four years to six but remove the possibility of reappointment. And it could end the current practice of appointing new members of the Fed's board of governors to fill the partial, unexpired terms of governors who leave. All new governors should be appointed to their own 14-year terms, without possibility of reappointment.
At the end, though, he does come down behind Bernanke as the guy best suited to guide the Fed into this new and more collegial era.
Photo credit: Gerald Herbert -- Associated Press
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