WASHINGTON (HedgeWorld.com)–President Bush sent two nominations to the Senate to fill the remaining vacancies on the board of governors of the Federal Reserve, and this may augur a change in the way the Fed approaches monetary policy.
The President’s nominees are: Ben S. Bernanke, currently the chair of the department of economics at Princeton University, and Donald L. Kohn, who has been on the staff of the board of governors since 1975.
Neither of these nominees is known as a strong exponent of views of the Fed’s regulatory responsibilities. Bert Ely, a banking industry consultant, said Monday that Mr. Kohn would likely reflect the Fed’s institutional interest, “protecting its regulatory turf and not going too easy on the banks.”
Both nominees have expressed themselves firmly on core issues of monetary policy. Mr. Bernanke is a prominent advocate of the view that central banks should publicly announce and pursue their specific targets for the rate of inflation. This inflation targeting approach, he contends, leads to greater predictability and an improved climate for steady economic growth. He recommends it over alternative approaches, such as the targeting of money supply numbers or interest rates.
Mr. Kohn also seems amenable to an inflation-targeting approach. In October 2000, he prepared a report on monetary policy for the Bank of England. That Bank does use inflation targets, and Mr. Kohn found the results impressive.
Mr. Bernanke will serve the remainder of the term of Edward W. Kelley, Jr., who resigned last December. That term expires on Jan. 31, 2004. He will represent the Atlanta district. Mr. Kohn will replace Laurence H. Meyer, whose 14-year term expired this January. Mr. Kohn will represent the Kansas City district.
If these nominations are confirmed, President Bush will have appointed five of the seven members of the board. He re-appointed vice-chairman Roger Ferguson, and appointed two new members, former bankers Susan Bies and Mark Olson, last year, (Previous HedgeWorld Story). Serious opposition to confirmation seems unlikely. “Mr. Kohn in particular is well known to the Senate staff, because he’s been at the Fed for so long,” Mr. Ely noted.