Every one seems to have an opinion on the rapidly approaching end of the Greenspan era. Greg Ip at the Wall Street Journal surveys the Greenspan Fed and ponders what is in store for the future Fed chairman Ben Bernanke.
Apparently Bernanke will be faced with a Fed that is more disposed towards a more democratic policy making process than was in place during Greenspan’s tenure.
Though a highly respected economist, Mr. Bernanke won’t initially command the deference that Alan Greenspan earned during more than 18 years as chairman. With his colleagues expecting to contribute more, Mr. Bernanke may face a delicate tradeoff when they disagree. He might compromise, which could damp his influence over the Fed’s message. Or he could decide to impose his views, which could provoke dissents and raise questions about his authority.
Fed officials say the increase in internal democracy is both inevitable and constructive, and has led to more collegial policy making. The Fed’s tradition of deciding by consensus is well entrenched, they say. Some officials say an increase in formal dissents would even be healthy. At turning points in the economy, they could reveal honest disagreements among officials on difficult questions.
Most analysts anticipate an end to the current trend of Fed fund increases. It will be interesting to see the interaction of a more democratic Fed and the potential for future policy changes.
Long time Fed watcher John M. Berry at Bloomberg.com weighs in on the Greenspan legacy and jumps to his defense. In light of the various deficits facing the economy some analysts feel that Greenspan’s policies were part and parcel of the inflation of the various bubbles. Berry is frustrated by the critics by the lack of concrete theories on what the Fed should have done differently.
Kevin Hassett at Bloomberg.com thinks the new Fed chairman should “assert his independence and authority” right off the bat. Hassett belives that Bernanke has two opportunities, first an appearance before Congress and the March Fed meeting, to make a strong presence known to the financial world.
Caroline Baum at Bloomberg.com reports that the Fed may not need to increase rates at the March meeting. The fourth quarter GDP report was weaker than expected, but was written off as anomalous by most analysts. Baum points to the sharp breaks in demand across the board. Maybe a 4.75% Fed funds rate is a step too far.