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Strategies & Market Trends : Aardvark Adventures -- Ignore unavailable to you. Want to Upgrade?

To: ~digs who wrote (1700)	10/22/2005 2:24:51 PM
From: ~digs	Respond to of 7944

The Fed Chairman Greenspan's term at the Fed ends on Jan 31 (barring delays). With just over 3 months to go a nomination or even public comment from the White House hasn't been heard. Our thoughts on the next Fed Chairman have been earlier aired in columns titled "Fed Jockeying" and "After Alan" as today's column again provides some perspective on the top candidates. Bush is expected to announce a nomination by mid-November. Generally, it is presumed that the replacement will be a practiced economist already well respected in the financial markets, adept at crisis management and with an ability to build consensus among the monetary policy-setting committee. Moreover, given the more global dimensions the U.S. carries the new Fed Chairman must have a firm understanding of the international implications of the U.S. economy and financial markets. Ben Bernanke The Fed Governor was nominated by President Bush to chair the Council of Economic Advisors in April. A very political position as it requires agreement with the Administration's economic/policy stance rather than strict devotion to the individual's monetary/fiscal policy opinions. The shift of Fed Gov Bernanke to the CEA serves as a clear warning that Bush is evaluating his ability to carry the Administration's line on policy issues (e.g. Social Security, deficits, taxation) in balance with the monetary policy expertise shown at the Fed since his Aug 2002 confirmation to the Board. Bernanke has been quite vocal about his leaning toward an inflation target as a central mandate for Fed policy direction -- unlike Greenspan who prefers judgment over the rigidity of an equation. In my opinion Bernanke is the key contender for the Fed Chair position. But there are many others. Donald Kohn The Economist magazine favors Kohn as the replacement given his political independence. Kohn is a life-time central banker and has served as a close advisor to Chairman Greenspan. Like Greenspan, Kohn opposes strict inflation targeting. The Fed governor has been attending the Fed's policy meetings for almost a quarter century as his vast experience of policy decision-making and financial crises would be invaluable in troubled times. Unfortunately, Kohn is largely an unknown outside of the Fed. Martin Feldstein Feldstein has long been presumed one of the front runners given his impressive academic reputation and communication skills. Feldstein was the chairman of the White House's Council of Economic Advisors (CEA) under Reagan and now serves as both a Harvard professor and president of the National Bureau of Economic Research which focuses on business cycles including the marking of recession/expansion periods. Feldstein was an advisor to the 2000 Bush campaign and firmly supported the tax cut program. However, Administration insiders criticize Feldstein's stance on the dangers of a growing budget deficit and the tax solutions during his term in the Reagan administration. Just as Greenspan prefers unanimity at the Fed, Bush demands a united front from his Administration. Glenn Hubbard Hubbard served as Bush's CEA chairman until April 2003 and is also a firm supporter of the president's tax cuts. Hubbard has a very comfortable relationship with Bush which strongly boosts his odds given the president's unsavory tendency toward cronyism. Most of Hubbard's career has focused on fiscal (i.e. taxes) rather than monetary policy and he is little known on Wall Street or the financial community. Hubbard's assertion that there is no link between budget deficits (the demand for public borrowing) and interest rates (the cost of public borrowing) raises concern from at least this economist. And Others Lawrence Lindsey, a former Fed governor and Bush policy advisor, stands at a low level on our list after being fired as a presidential advisor in 2002 after being a bit too loose-lipped on the costs of the Iraq War. The current Fed vice-chairman, Roger Ferguson, is a possible candidate but unknown outside the Fed and largely seen as an administrator. He is also disadvantaged given his democratic leanings. John Taylor, the undersecretary of the Treasury, is a well known monetary economist. While teaching at Stanford he devised the well-known Taylor rule which helped clarify how inflation and growth help steer monetary policy. Hopefully the President will nominate true talent and a economic/policy thinker rather than a crony or puppet to play a part. Fed governors are appointed to 14 year terms to avoid that type of political decision making as the respected reputation of the Fed depends on its 'independence' while within the government. For an overview of the structure and workings at the Federal Reserve see a reader friendly column titled "Fed 101." written by --Timothy E. Rogers partners.briefing.com